Consumption + Investment + Government Expenditure + (Exports - Imports)
wages and salaries + interest and profits + depreciation + (indirect taxes - subsidies)
AE = C + I national income Y = aggregate disposable income Yd saving = disposable income not spent on consumption Y = actual national income Y = equilibrium national income when Y = AE I is not affected by current level of GDP (I is autonomous)
Yd = Disposable income C = Desired Consumption S = Desired saving C/Yd = Average propensity to consume (APC) - proportion of disposable income that households want to consume (change in C)/(change in Yd) = Marginal propensity to consume (MPC) - how much of one addiitonal dollar of income gets spent on consumption. S/Yd = Average Propensity to save (APS) - proportion of disposable income that households want to save (change in S)/(change in Yd) = marginal propensity to save (MPS) - relates the change in desired saving to the change in disposable income that brought it about APC + APS = 1 MPC + MPS = 1 simple multiplier = (Y change/A change) change in actual national income divided by change in autonomous expenditure
G is part of aggregate desired expenditure G is autonomous where Y is GDP nad t is net tax rate T = tY Yd = Y - T (disposable income equals income minus taxes) m = marginal propensity to import Y = GDP IM = mY NX = X - mY
AE = C + I + G + (X - IM) AE = c + MPC(1 - t)Y + I + G + (X - mY) AE = autonomous expenditure + induced expenditure = [c + I + G + X] + [MPC(1 - t) - m]Y z = MPC(1 - t) - m
Yd = disposable personal income (DSPI) S = personal saving (PMSAVE) APS = S/Yd = Average propensity to save APC = 1 - APS = Average propensity to consume C = APC*Yd = Desired Consumption MPC = changeC/changeYd MPS = changeS/changeYd = 1 - MPC m = IM/GDP c = C - MPC(Yd) C = c + MPC(Yd)