EC140 Chapter Notes - Chapter 21: Autarky, Real Interest Rate, Pessimism
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EC140 Full Course Notes
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Chapter 21 the simplest short-run macro model. Desired expenditure: what people would like to spend given the resources they have. The sum of their desired expenditure = desired aggregate expenditure (ae) In studying expenditure we consider four main groups: Ae = c + i + g + (x-im) There is no trade with other countries ( closed economy ) Disposable income: the amount of income households receive after deducting what they pay in taxes and adding what they receive in transfers. In the simplest macro model, disposable income (yd) = national income (y) Savings represent all disposable income that is not spent on consumption. Relationship between desired consumption expenditure and the variables that determine it: disposable income, wealth, interest rates, and future expectations. The break-even level occurs where desired consumption equals disposable income (i. e. all disposable income is spent on consumption, desired savings = 0)
