EC140 Chapter Notes - Chapter 21: Opportunity Cost, Global Recession, Retained Earnings
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EC140 Full Course Notes
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Ec140- chapter 21: the simplest short run macro model. Our model of the macro economy deals with both actual and desired expenditures: equilibrium national income involves the relationship between actual and desired. Autonomous vs induced expenditure: autonomous expenditure: components of aggregate expenditure that do not depend on national income, do(cid:374)"t (cid:272)ha(cid:374)ge s(cid:455)ste(cid:373)ati(cid:272)all(cid:455) (cid:449)ith (cid:374)atio(cid:374)al i(cid:374)(cid:272)o(cid:373)e, taxation income, government expenditures, investments, exports, food, shelter. Induced expenditure: change in response to changes in national income. Induced response of desired aggregate expenditure to a change in national income plays a key role in determination of equilibrium national income. Imports like electronics, automobiles, clothing and exports like wheat, prescription drugs. Important simplifications: goal: develop simplest possible model of national-income determination, begin by making 3 simplifying assumptions, there is no trade with other countries- economy being studied is a closed economy, no government- no taxes, price level is constant. Desired consumption expenditure: disposable income: amount of income households receive after deducting taxes.
