ECON20001 Chapter Notes - Chapter 3: Disposable And Discretionary Income, Exogeny, Consumption Function
29 Jun 2020
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Net exports = exports - imports (inventory investment) Identity: z = c + i + g + x - im. Closed economy identity: z = c + i + g. Behaviour equation because it captures the behaviour of consumers. Marginal propensity to consume (mpc) c1 = effect an additional dollar of disposable income has on consumption. 0 < c1 < 1 c0 is what people would consume if their disposable income was 0. Equilibrium in the goods market requires production y to be equal to the demand for goods z. Y = c0 + c1(y - t) + i + g. Y = 1/(1-c1) (c0 + i + g - c1t) Autonomous spending = (c0 + i + g - c1t) Private saving s = yd - c = y - t - c. Y - t - c = i + g - t. S = -c0 + (1 - c1)(y - t)
