ECON 209 Chapter Notes - Chapter 21: Disposable And Discretionary Income, Consumption Function, Autonomous Consumption
Document Summary
Chapter 21: the simplest short-run macro model. Ae = c + i + g + (x-im) National income measures actual expenditures in each of the four expenditure categories. Induced expenditure: autonomous: elements of expenditure that do not change systematically with national income, induced: any component of expenditure that is systematically related to national income. Important simplifications in this chapter: 1) no trade with other countries closed economy, 2) no government, hence no taxes, 3) the price level is constant. In our simple model with no government or taxation, disposable income: By definition, there are only two possible uses of disposable income consumption and saving. When the household decides how much to put to one use, it has automatically decided how much to put to the other use. The factors that influence a household"s decision on how much to consume and save are summarized in the consumption function and the saving function.
