ECON 2 Lecture Notes - Lecture 12: Inverse Function, Autonomous Consumption, Savings Account

• School: Irvine Valley College
• Department: Economics
• Course: ECON 2
• Professor: colins

Document Summary

We have seen that equilibrium in the goods market require that s = i. all factors that cause changes will consumption, savings and investments will therefore influence the equilibrium position. Where; i0 = autonomous investment; = autonomous consumption; r = interest rate and & k = parameters: using the expenditure approach of deriving the is equation, and we assume absence of government. Using the savings approach of deriving the is equation we recall that s = sy; where s is a parameter and 0 < s < i. The aggregate expenditure function (e) determines a specific national equilibrium income (y). Since ae = c + i; and i = f(r); then ae is also function of interest rate (r). Different levels of expenditure e1, e2, and e3 will be realized at different interest rates r1, r2, and r3. Consequently different levels of equilibrium income (y) will be y1, y2, and y3 will be realized in the goods market.