ECON 1P92 Lecture : Chapter 21 The Simple Short-Run Macro Model.docx

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2 Feb 2013
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Total desired expenditure (aggregate expenditure, or ae) What would be spent, given y, on domestically produced g&s. Ae is divided into four categories: desired consumption (c, desired investment (i, desired government purchases (g, desired new exports (nx=x-im) Ae = c + i + g +x im. Do not change with changes in national income (y) Change with changes in national income (y) Relationship between c and variables that influence it. Determined by current real disposable income (yd) If yd is 100: c = 40 +0. 8(100) Change in dersired consumption divided by the change in disposable income. Mpcyd = change in consumption/change in disposable income. This case: mpcyd= 80/100 = 0. 8, disposable income increseas by , consumption increases by . Change in consumption divided by change in disposable income. Mpcyd (0. 8) is constant since slope of line is constant. Apcvd falls as level of income rises. Change in desired saving divided by change in disposable income.

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