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**Unformatted text preview: **goods exceed your income. (You run down your savings) . x When your income is more than $31,486 your income exceeds your expenditures on consumption goods. (You save some of your income) . A few more definitions AC = 0.57*AI + 13,539 x Model the formal statement of a theory, often presented using mathematical equations x Variable a measure that can change such as consumption or income o Dependent variable o Independent variable o In the example above, consumption depends on income. x Parameters values which remain constant in an equation (here: 0.57 and 13,539) Y = C + I + G + (XM) x Ceteris paribus all else equal x How does an increase in investment, I , affect national income, Y ? x To answer this question we must hold all other variables constant, while we determine the effect of investment alone. Page 8...

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