Economics 1022A/B Chapter Notes - Chapter 27: Autonomous Consumption, Disposable And Discretionary Income, Aggregate Demand
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ECON 1022A/B Full Course Notes
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On any given day with fixed prices, the price level is fixed and aggregate demand determines real gdp. Aggregate expenditure: has 4 components: consumption expenditure, investment, government expenditure on goods and services, and net exports. Aggregate planned expenditure: equal to the sum of the planned levels of consumption expenditure, investment, government expenditure on goods and services, and exports minus imports. 2 of the components of planned expenditure consumption and imports change when income changes and so they depend on real gdp. Several factors influence consumption expenditure and saving plans, most importantly: disposable income: aggregate income minus taxes plus transfer payments, aggregate income = real gdp, disposable income depends on gdp. Consumption expenditure that is induced by an increase in disposable income. Saving function: the relationship between saving and disposable income, other things remaining the same: real interest rate, wealth, expected future income. Marginal propensity to consume: the fraction of a change in disposable income that is spent on consumption.