Class Notes (806,820)
Canada (492,456)
ECON 209 (122)

CHAPTER 21.docx

10 Pages
Unlock Document

McGill University
Economics (Arts)
ECON 209
Paul Dickinson

CHAPTER 21THE SIMPLEST SHORTRUN MACRO MODEL211 DESIRED AGGREGATE EXPENDITURE Desired expenditure refers to what people desire to spend out of the resources that they actually have Desired aggregate expenditure AEthe sum of desired or planned spending on domestic output by households firms governments and foreigners Desired expenditure need not equal actual expenditure firms may unintentionally invest in inventory accumulation if sales are low and unsold goods pile upNational income accounts measure actual expenditures in each of the four expenditure categories National income theory deals with desired expenditures in each of these four categories Autonomous versus induced expenditure Autonomous expenditure elements of expenditure that do not change systematically with national income Induced expenditure any component of expenditure that is systematically related to national income Important simplifications Closed economy an economy that has no foreign trade in goods services or assetsAlso assume there is no government and that price level is constant Desired Consumption Expenditure With no government disposable income Y is equal to national income Y DSavingall disposable income that is not spent on consumption By definition there are only two possible uses of disposable incomeconsumption and saving When the household decides how much to put to one use it has automatically decided how much to put to the other use Consumption Function Consumption functionthe relationship between desired consumption expenditure and all the variables that determine it in the simplest case the relationship between desired consumption expenditure ad disposable incomeKey factors influencing desired consumption are assumed to beDisposable incomeWealthInterest ratesExpectations about the future
More Less

Related notes for ECON 209

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.