EC140 Study Guide - Midterm Guide: Disposable And Discretionary Income, Consumption Function, Expenditure Function
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EC140 Full Course Notes
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Desired aggregate expenditure (ae): the sum of desired or planned spending on domestic output by households, firms, governments, and foreigners. Ae = c + i + g + (x im) Variables with a subscript a actual value. Variables without a subscript is the planned or desired amount. Desired expenditure doesn"t need to equal actual expenditure. Autonomous expenditure: elements of expenditure that do not change systematically with national income (expenditure does not change when income changes: they can change, but as stated above, not systematically. Induced expenditure: any component of expenditure that is systematically related to national income (expenditure changes when income changes: plays a key role in determination of equilibrium national income. There is no trade with other countries that is, the economy we are studying is a closed economy (no foreign trade) There is no government hence, no taxes. With no government and no taxation, disposable income = national.