ECO100Y1 Lecture Notes - Xm Satellite Radio, Parsec, Foreign National

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10 Feb 2014
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Topic 17 national income and the price level. Jan 31st feb 7th: overview, simple model. Answer: where desired spending called aggregate expenditure (ae) equals national income (output) Assume price level is fixed ( nominal gdp = real gdp) to simplify analysis: - households" consumption (c) depends upon income (y) - savings (s) = income not consumed = y-c. Marginal-propensity-to-save (mps) = % s/% y mpc+mps=1. (for every dollar of the income is either saved or consumed;) - firms undertake investment (i) in anticipation of earning a profit; - will treat as fixed (i=25) in first example. Consumtion function: c = 10 + 0. 9y mpc = 0. 9. Savings function: s = y c = y - (10 + 0. 9y) = - 10+0. 1y mps = 0. 1 mpc. S = 0. 1y - 10 income level of. Change in consumption/savings that"s independent of change in income; Change in consumption/savings that"s brought about by change in income;

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