ECO102H1 Lecture Notes - Lecture 13: Autonomous Consumption, Simple Algebra, Parsec
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ECO102H1 Full Course Notes
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National income and the multiplier: overview, simple model. [remember: we can measure gdp by either adding expenditures on output or adding the incomes earned to produce output] C + i = y where y = national income. Observations: corresponds to text, chapter 21, price level is treated as fixed [so nominal gdp equals real gdp, student should focus on economic forces that produce equilibrium [not the simple algebra] Output growth [real gross domestic product, or real gdp] [labour is a factor of production, and use of labour will fall if total output falls] Consumption: households" consumption (c) depends upon income (y) Savings (s) = income not consumed: key concepts marginal-propensity-to-consume (mpc) = c/ y marginal-propensity-to-save (mps) = s/ y mpc + mps = 1. Investment: firms undertake investment (i) in anticipation of earning a profit, will treat i as fixed (i=25 in first example) If there is no change in y, but c changes, result is change in autonomous consumption.