ECON 209 Lecture Notes - Lecture 22: Autonomous Consumption, Consumption Function, Potential Output

• School: McGill University
• Department: Economics
• Course: ECON 209
• Professor: Adeline Saillard

Document Summary

T = ty t = net tax rate: taxes reduce households" disposable income relative to national income, net tax rate: the increase in net tax revenue generated when national income rises by one dollar. Introducing foreign trade net exports: treat exports as autonomous expenditure imports depend on spending decisions of canadian households. As consumption rises, imports will also increase. Im = my: m = marginal propensity to import, the increase in import expenditures induced by. increase in national income: nx = x - my. X = exports: negatively related to national income. Depreciation of dollar -> shift expenditure toward domestic goods: nx function shifts upward. Equilibrium and national income: desired consumption and national income, yd = y t, assume net tax = 10% T = (0. 1)y: disposable income must by 90% Yd = (0. 9) y: consumption function. C = 30 + (0. 8)yd: mpc = 0. 8, distribute (0. 9)y for yd in consumption function.