ECON102 Lecture Notes - Lecture 6: Aggregate Demand, Disposable And Discretionary Income, Consumption Function
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ECON102 Full Course Notes
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Document Summary
Gdp = components of expenditure summed up. Consumption and imports are influenced by real gdp (equivalent to income) Thus, there is a two-way link between aggregate expenditure and real gdp. Ceterius parbus, increase in income increases expenditure, and increase in expenditure increases real gdp (which is equivalent to income) and vice-versa. Consumption expenditure is influenced by many factors, but most direct one is disposable income. Disposable income is aggregate income (real gdp) minus taxes plus transfer payments, called. Disposable income is either spent or saved. The relationship between consumption and disposable income is the consumption function. The relationship between saving and disposable income is the saving function. When consumption is more than yd, saving is negative (dissaving), and vice-versa. Consumption function always has a positive y-intercept because you must always consume, no matter how much you earn. Autonomous consumption the amount of consumption that would take place in the short-run even if people have no income.