ECON 110 Chapter Notes - Chapter 21: Autarky, Production Function, Consumption Function

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ECON 110 Full Course Notes
ECON 110 Full Course Notes
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Chapter 21: the simplest short run macro model. Desired aggregate expenditure is the sum of desired or planned spending on domestic output by households, firms, gov"ts, and foreigners with the resources they actually have. Ae = c + i + g + (x im), desired expenditure need not equal actual expenditure. National income accounts measure actual expenditures in each of the categories. National income theory deals with desired expenditures in each of the categories. Autonomous expenditures are elements of expenditure that do not change systematically with national income. Induced expenditures are any component expenditures that are systematically related to national income plays a key role in determining the equilibrium national income. In this chapter, only dealing with consumption and investment. Consumption is the largest component of gdp and of aggregate expenditure (ae: provides the most important link between desired ae and real national income. Investment is a smaller component and is also more volatile.