ECON 102 Chapter Notes - Chapter 21: Consumption Function, Real Interest Rate, Expenditure Function

• School: UBC
• Department: Economics
• Course: ECON 102
• Professor: Ying Kong

Document Summary

Desired expenditure is what people want to spend with the resources they have. We consider four groups of expenditure decision makers . Desired aggregate expenditure is the sum of the desired expenditure of these groups. Ae = c + i + g + (x-im) National income accounts measure actual expenditure in each of the four expenditure categories. National income theory deals with desired expenditure in each of these 4 categories. Autonomous expenditure does not change in response to national income. Induced expenditure does change in response to national income. Changes in induced expenditure plays a key role in determining equilibrium. Consumption is the largest component of aggregate expenditure (55-60% of gdp) Investment includes accumulation of inventories & expenditure on new machines which adds to physical capital (20% of gdp) By definition there are two possible uses of disposable income. When the household decides how much to put to one use, it automatically decides how much to put to the other.