Aggregate Expenditure and Equilibrium Output

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  • 1. Aggregate Expenditure and Equilibrium Output
  • 2. Aggregate Output and Aggregate Income ( Y )
    • Aggregate output is the total quantity of goods and services produced (or supplied) in an economy in a given period.
    • Aggregate income is the total income received by all factors of production in a given period.
  • 3. Aggregate Output and Aggregate Income ( Y )
    • Aggregate output (income) (Y) is a combined term used to remind you of the exact equality between aggregate output and aggregate income.
    • 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.
  • 4. Income, Consumption, and Saving ( Y , C , and S )
    • 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.
    • 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.
  • 5. Consumption and Saving
    • 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).
    • Once we know how much consumption will result from a given level of income, we know how much saving there will be. Therefore,