Aggregate Expenditure and Equilibrium Output

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Aggregate Expenditure and Equilibrium Output

  1. 1. Aggregate Expenditure and Equilibrium Output
  2. 2. Aggregate Output and Aggregate Income ( Y ) <ul><li>Aggregate output is the total quantity of goods and services produced (or supplied) in an economy in a given period. </li></ul><ul><li>Aggregate income is the total income received by all factors of production in a given period. </li></ul>
  3. 3. Aggregate Output and Aggregate Income ( Y ) <ul><li>Aggregate output (income) (Y) is a combined term used to remind you of the exact equality between aggregate output and aggregate income. </li></ul><ul><li>When we talk about output ( Y ), we mean real output , not nominal output. Output refers to the quantities of goods and services produced, not the dollars in circulation. </li></ul>
  4. 4. Income, Consumption, and Saving ( Y , C , and S ) <ul><li>A household can do two, and only two, things with its income: It can buy goods and services—that is, it can consume —or it can save. </li></ul><ul><li>Saving is the part of its income that a household does not consume in a given period. Distinguished from savings , which is the current stock of accumulated saving. </li></ul>
  5. 5. Consumption and Saving <ul><li>Since there are only two places income can go: consumption or saving, the fraction of additional income that is not consumed is the fraction saved. The fraction of a change in income that is saved is called the marginal propensity to save (MPS). </li></ul><ul><li>Once we know how much consumption will result from a given level of income, we know how much saving there will be. Therefore, </li></ul>
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