ECO102H1 Lecture Notes - Autonomous Consumption, Disposable And Discretionary Income, Xm Satellite Radio
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ECO102H1 Full Course Notes
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Induced expenditure: dependent of y: gov"t spending and taxes. Spend your way out of a recession . To fund g, governments need to collect taxes. Marginal propensity to tax = tax rate = t. Taxes will indirectly impact ae through consumption. 3) disposable income: yd = y - t. Amount of income consumer actually has after paying taxes. Should update the c function where the gov"t exists. C1: marginal propensity to consume of disposable income. 4) budget balance: total tax revenue less total government expenditure. If t< g: budget deficit: extended model example. Rewrite the consumption function as a function of y. C = 10 + 0. 9 (y - 0. 2y) Ae = c + i + g + x - m. Clearly label the axes, the equilibrium level of national income, and any intercepts. All else equal, suppose government spending increases to 26. 5 (from 17) . Use the multiplier to calculate the new equilibrium level of national income.
