EC140 Lecture Notes - Lecture 3: Opportunity Cost, Feedback, Consumption Function
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EC140 Full Course Notes
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Key variables are y, c, i, g, x, im. Variable with a subscript a - actual value: Variable without a subscript is the planned or desired amount: Gdp measured in expenditure is made up of: Ae = c + i + g + (x im) Autonomous expenditure does not change when income changes. Induced expenditure changes when income changes (dependent on national income) Understand the basic mechanics of a macroeconomic model. Real per capita saving = real per capita disposable income real per capita consumption. The more money people have, the more they spend. By definition, you consume some, you save less. Consumption is assumed to increase with disposable income: Consumers are assumed to have some existing savings. Even if income were zero, consumers would have some consumption spending. Equals a in our desired consumption equation. As income rises, people spend more on consumption. For every additional dollar someone makes, how much more they will spend.
