ECON 102 Lecture Notes - Lecture 3: Real Interest Rate, Consumption Function, Opportunity Cost
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ECON 102 Full Course Notes
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Actual gdp into its components: ca, ia , ga, and nxa. Total desired expenditure is also divided into the same categories: Desired net exports (exports imports), nx. Ae = c + i + g + nx which is also (exports imports) Autonomous expenditures: components of aggregate expenditure that do not depend on the level of national income. Induced expenditures: the component that depends on or changes with the level of national income. Desired expenditure is what consumers and firms would like to purchase. Two possible uses of disposable income (i. e. , net income after paying taxes): consumption (c) or saving (s). You either consumer your income or save for future consumption. In the simplest theory, consumption is determined primarily by current disposable income (yd). Higher the disposable income, higher is the consumption. Individuals are forward looking, and so consumptions depends more on lifetime income , rather than only current income.