ECON 110 Chapter Notes - Chapter 21: National Income And Product Accounts, Expenditure Function, Consumption Function

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ECON 110 Full Course Notes
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ECON 110 Full Course Notes
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The equation for desired aggregate expenditure is: ae = c + i + g + (x im) An example of an aggregate expenditure function is ae = billion + 0. 92y. National income accounts measure actual expenditure in four broad categories. The equation for actual national income from the expenditure side is written as gdp = ca + ia + ga + (xa ima: a) with desired expenditure in the same four categories. The equation for a simple consumption function is written as c = a + by. The letter a represents the autonomous part of consumption. The letter by represents the induced part of consumption. If household experience and increase in wealth that leads to an increase in desired consumption, the ae curve will shift up. Equilibrium national income will rise to the level indicated by the intersection of the ae curve with the 45 line. billion.

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