ECON1130 Lecture Notes - Lecture 17: Autonomous Consumption, Fiscal Multiplier, Transfer Payment
4 Apr 2017
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Autonomous expenditure: expenditure that does not depend on income: example: planned investment, government spending, net exports. Induced expenditure: expenditure that depends on income: example: from consumption, the induced expenditure is the mpc*(y t) Multiplier effect: an increase in autonomous expenditure shifts the aggregate expenditure line upward, change in real gdp is larger than change in autonomous expenditure ( ae) multiplier effect, there are two multipliers. Spending multiplier (mspending): ratio that relates to change of real. Gdp to initial change in autonomous expenditure ( ae) Applies to changes in autonomous consumption, government purchases, investment, nx. Equilibrium gdp = mspending * ae. Value of mspending: 1/(1 mpc, recall that ye = 1/(1 mpc) * (co mpc*tbar + As an example assume that autonomous consumption is rising: co > 0, ye = (1/1 mpc) * co. Value of mtaxes: mpc/ 1 mpc, tax is like a negative transfer payment increase in tax decreases disposable income. C = 100 + 0. 75 (y 100)
