EC140 Lecture Notes - Lecture 5: Autonomous Consumption, Consumption Function
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EC140 Full Course Notes
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Ec140 class 5 sr macro model cont chapter 21. Explain difference b/w desired and actual expenditure notation. Explain how a change in desired expenditures affects equilibrium income through the simple multiplier. When the consumption function lies below the 45 degree line, the savings are positive. All disposable income spent on consumption or savings. 45 line is when c = yd; diff b/w 2 lines is savings. Given c = 20 + 0. 6yd and i = 50 find savings. First figure out y: 20 + 50 + 0. 6yd = y. Figure out consumption: c = 20 + 0. 6(175) Many factors can cause a parallel shift of the ae function. A parallel shift in ae will lead to an increase in income. Rearranging results in y = a . (1-z) If a increases, y increase by a factor (multiplier): 1 / (1-z) Both lead to an increase in income that justifies the confidence.
