EC140 Chapter Notes - Chapter 21: Consumption Function, Autonomous Consumption, Expenditure Function
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EC140 Full Course Notes
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Government purchases (g) and net exports (x - im) Four main groups of decision-makers: domestic households, firms, governments, foreign purchasers of domestically produced goods. Desired aggregate expenditure (ae): the sum of the desired expenditures on domestically produced output by each of the 4 groups of decision-makers. Ae = c + i + g + (x - im) Desired expenditure does not need to equal actual expenditure! Autonomous expenditure: components of aggregate expenditure that do. Not depend on national income these can change, but not because of changes in national income. Induced expenditure: components of aggregate expenditure that do change systematically in response to national income. Disposable income (yd) = national income (y) in the simple model, because there are no taxes or transfer payments since there is no government. Saving: all disposable income that is not spent on consumption. Only two uses for disposable income: consumption or saving!
