EC140 Lecture Notes - Lecture 6: Disposable And Discretionary Income, Consumption Function

• School: WLU
• Department: Economics
• Course: EC140
• Professor: All

Document Summary

Desired aggregate expenditure (ae): sum of desired expenditure. Desired expenditure: what you want to spend given what you have: autonomus expenditure: don"t depend on level of naional income, induced expenditure: any component of expenditure related to naional income. Four main groups of decision makers: domesic households, irms, government, and foreign purchasers. Equilibrium naional income: diference desired and actual expenditure. Relaionship between desired consumpion expenditure and the values and the variables that determine it. In simplest case the relaionship between desire consumpion, consumpion expenditure, and disposable income. Key factors are: disposable income wealth, interest rates and expectaions about the future. Increase in disposable income leads to an increase in desired consumpion (more money made, money spent on consumed products) Mpc the change in desired consumpion over the change in disposable income. Mpc: the slope of the consumpion funcion. Apc falls as the level of income rises: apc=c/yd.