EC140 Chapter Notes - Chapter 21: Autonomous Consumption, Consumption Function, Autarky
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EC140 Full Course Notes
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Gdp = ca + ia + ga + nxa a = actual. Sum of desired or planned spending on domestic output by households firms governments, and foreigners. Ae = c + i + g + nx. Components of ae that doesn"t change with income are called autonomous expenditure: ones that do are called induced expenditure. No trade with other countries (a closed economy [x=0, im=0]) No government - thus, no taxes; (g=0, t=0) Yd = y: what households don"t spend on consumption is savings. Consumption is assumed to increase with disposable income. If yd = 0, c = 30 billion. For every one dollar increase in yd, c increases by 80 cents. Even if disposable income = 0, consumers have some consumption spending equals a in our desired consumption equation. a is the intercept of the consumption equation. Parameter b is marginl propensity to consume (mpc) is the slope of consumption function: mpc = c/ yd.
