ECON 1010 Chapter Notes - Chapter 27: Business Cycle, Yde, Disposable And Discretionary Income
Document Summary
Investment and exports fluctuate like the volume of c line dion"s voice in a concert and the surface of a potholed road. Keynesian model describes the economy in the very short run when prices are fixed. Because each firm"s price is fixed, for the economy as a whole: the price level is fixed and the aggregate demand determines real gdp. The components of aggregate expenditure sum to real gdp. That is, y = c + i + g + x m. Two of the components of aggregate expenditure, consumption and imports, change when income changes so they depend on real gdp. So there is a two-way link between aggregate expenditure and real gdp. Other things remaining the same, an increase in real gdp increases aggregate expenditure. An increase in aggregate expenditure increases real gdp. Consumption expenditure is influenced by many factors (disposable income, real interest rate, Wealth, expected future income) but the most direct one is disposable income.