Week 14 content Flashcards
What is aggregate income equal to? (2 things)
Aggregate output & Aggregate Expenditure
Formula for Y
Y = C + S
Formula for Disposable income
Income - Taxes
What is MPC + formula?
The extra proportion of income consumed on goods/or services. Change in C/ Change in Y
What is the formula for C?
a + bY
Formula for Savings
-a + y(1-b)
Formula for APC
a/y + b
Formula for APS
-a/y + (1-b)
What does APC + APS equal?
1
What does MPC + MPS equal??
1
Formula for Change in Inventories
Productions - Sales
How do business pre-determine future investments?
Derived from expectations of the future
Draw the planned investment diagram
Check book
When Y>AE, what does this mean?
Firms are producing more than is being demanded by households. Unplanned rise in inventory
When Y IS LESS THAN AE
Firms are producing less than is being demanded by houses. Unplanned decline in inventory
What determines the rise or decline in inventory?
Aggregate expenditure
What is the second equilibrium output?
Planned investment = planned saving
What is autonomous investment dependant on?
Expectations on the future
What is autonomous consumption dependant on?
Consumer confidence
If AE increases, what happens to graph?
Upward shift, moves left
What is the mutliplier?
When an increase in AE, consequently leads to an increase in national income
What is the knock on effect of an increase in national income?
Households generate higher levels of income, this translates into a higher level of spending - adds to surge of the initial stimulus
What does an increase in consumption & the size of the multiplier depend on?
MPC, higher MPC the greater the increase in consumption & higher MPC results in a larger increase in national income
What is the formula for the multiplier? (2)
1/1-MPC & 1/MPS
