ECO209Y1 Lecture Notes - Lecture 4: Real Interest Rate, Autonomous Consumption, Disposable And Discretionary Income
Document Summary
*assume all variables except disposable income constant c: describes rate of change of consumption as yd increases. Assuming no government (ta and tr = 0) Yd = y consumption assumed to depend on income alone. Yd = c + s s = yd - c s = yd - Savings function is like mirror image of consumption function. Describes total (desired or planned) investment expenditure by all private economic agents in economy. Expectations about behaviour of these variables during lifetime of investment. Assume investment does not depend on level of income. Autonomous ae cy: induced ae c: marginal propensity to spend. Happens to equal mpc numerically because of assumptions that investment is fixed, but conceptually different. Implicit assumption that actual consumption always equals desired because of involuntary changes in. Implicit assumption that actual consumption always equals desired because of involuntary changes in inventory. If ae > y, involuntary decrease in inventory to satisfy demand.
