ECON 102 Lecture Notes - Autonomous Consumption, Real Interest Rate, Aggregate Demand
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ECON 102 Full Course Notes
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The ad-as model: a theoretical model of national income (y) and the price. Describe the demand side of the economy by constructing a model of aggregate expenditure. Describe the supply side of the economy by hypothesizing the typical behavior of firms. Bring the two sides together in an aggregate supply and demand framework in order to analyze economic shocks and policy. Consider the theoretical counterpart to our measure of real gdp from chapter 20, the. Total amount that all parties (households, firms, government) want to spend. Just like quantity demanded but for all goods. Induced expenditure purchases of goods and services that depend on the level of national income. Autonomous expenditure purchases of goods and services that do not depend on the level of national income. This distinction is important for evaluating quantitative effects of government policy (ex. Consumption function relates the level of desired consumption to disposable income. Assume all disposable income not used for consumption is saved.