ECON 209 Lecture : CHAPTER 21.docx
12 Dec 2013
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Chapter 21 the simplest short-run macro model. Desired expenditure refers to what people desire to spend out of the resources that they actually have. Desired aggregate expenditure (ae) the sum of desired or planned spending on domestic output by households, firms, governments, and foreigners. Desired expenditure need not equal actual expenditure (firms may unintentionally invest in inventory accumulation if sales are low and unsold goods pile up) National income accounts measure actual expenditures in each of the four expenditure categories. National income theory deals with desired expenditures in each of these four categories. Autonomous expenditure: elements of expenditure that do not change systematically with national income. Induced expenditure: any component of expenditure that is systematically related to national income. Closed economy: an economy that has no foreign trade in goods, services, or assets. Also assume there is no government and that price level is constant. With no government, disposable income (yd) is equal to national income (y).
