EC140 Lecture Notes - Lecture 4: Autonomous Consumption, Macroeconomic Model, Expenditure Function

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Key variables are y, c, i, g, x, and im. Variable with a subscript a means actual value. Variable without a subscript is the planned or desired amount. Gdp measured in expenditure is made up of: consumption, investment, government purchases, net exports, ae = c + i + g + (x-im) Autonomous expenditure does not change when income changes. Understand the basic mechanics of a macroeconomic model: closed economy means no trade, no government and no taxes, constant prices. Yd = y in a model with no government or taxes. Consumption is assumed to increase with disposable income: c = a + b * yd. Consumers are assumed to have some existing savings. Consumers would have some consumption spending even if income were zero. Equals a in our desired consumption equation. People spend more on consumption as income rises. Average propensity to consume is apc: apc = c/yd. Marginal propensity to consume is mpc: mpc = c/yd.

Related Questions

The following is a model of a closed economy with no government.

C = 44 + 0.6YD; I = 12

Where C = desired consumption expenditure (in billions of $), YD =disposable income (in billions of $), and I = desired investment expenditure (in billions of $).

m) At equilibrium, what do the injections and the withdrawals in this economy equal?
n) Give two reasons why investment would change from I = 12 to I =18.
o) What are the new equilibrium levels of Y, C, S, and YD if investment changed from I = 12 to I = 18?
p) What is the size of the (simple) multiplier?
q) What is the change in Y in the 3rd round of the multiplier effect as a result of the change in investment in part n?

purplegnat513

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

Given the following information for the Macro Economy answer the following questions.

In this economy we have an MPC equal to 0.80, Autonomous Consumption of $600 billion, Planned Investment (I) of $1,000 billion, Government Spending (G) of $1,200 billion and Net Taxes (T) of $1,000 billion.

a) Fill in the missing data for: T, Yd, C, S, and AE (in that order in a table) for every level of Y given below (all the numbers are in billions).

Income (Y) Net Taxes (T) Disposable Income (Yd) Consumption (C) Savings (S) Aggregate Expenditures (AE)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000

b) Determine the Equilibrium level of Aggregate Income (Ye). Please state the reason for your answer.

c) Calculate the Spending Multiplier (show how you got your answer).

tealalligator726

EC140 Lecture Notes - Lecture 4: Autonomous Consumption, Macroeconomic Model, Expenditure Function

EC140 Full Course Notes

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