CAS EC 102 Lecture Notes - Lecture 9: Aggregate Supply, Aggregate Demand, Consumption Function

• School: Boston University
• Department: Economics
• Course: CAS EC 102
• Professor: Neil Watson

Document Summary

Put aggregate demand and supply together to see where economy is. Times when economy did will the big peak - ww2. Y = c + i + g + nx. Y = gdp (value of total output) - everything else is aggregate expenditure. Total current income (gdp) after taxes are taken out and after transfer payments are added. Consumption function: mathematical rep between consumption spending and disposable income - line of best fit - for every additional dollar of disposable income how much of it is spent. Marginal propensity to consume (mpc): the slope of the consumption function: the amount by which consumption spending changes when disposable income changes. Mpc = changes in consumption / change in disposable income. When y^d goes up c goes up. When y^d goes down c goes down. Marginal propensity to save (mps): the change in saving divided by the change in disposable income. Current disposable income (y^d = y - t)