EC140 Lecture Notes - Lecture 4: Autonomous Consumption, Consumption Function, Macroeconomic Model
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Ec140 class 4 chapter 21 simplest macro model. Key variables y, c, i, g, x, im. Variable w/ a subscript a actual value. Variable w/out a subscript is the planned/desired amount. Gdp measured in expend is made up of. Ae = c + i + g + (x-im) Autonomous expenditure does not change when income changes. Disposable income and consumption move together logically. Savings is gap b/w disposable income and consumption. People buy consumption goods from disposable income, yd. C (consumption) = a + b * yd. Consumption = autonomous + induced consumption * income. Consumers are assumed to have some existing savings. Even if income was zero, consumers would have some consumption spending. As income rises, ppl spend more on consumption. Apc = c/yd normally decreases as income increases vs. Mpc = c/ yd is constant; equals b in desired consumption eqn. 45 line represents c = yd; apc = 1. Ppl buy consumption goods from disposable income, yd.
