Output in a Private-Closed Economy In this case, the aggregate demand is equal to consumption plus investment: 2 AD=C+
Output in a Private-Closed Economy • In this case, the aggregate demand is equal to consumption plus investment: AD = C + I
Output in a Private-Closed Economy In the followed analysis, we simply assume s 2 that y is equal to O, indicating all output is demanded so that we should allow GDP=C+
Output in a Private-Closed Economy • In the followed analysis, we simply assume that V is equal to 0, indicating all output is demanded, so that we should allow GDP = C + I
Output in a Private-Closed Economy . According to income approach, GDP is also y 2 reflected as income (y) so that we have 2 HIs Y=C+
Output in a Private-Closed Economy • According to income approach, GDP is also reflected as income (Y) so that we have Y = C + I
Output in a Private-Closed Economy Consumption Determination: Consumption y 202 can be divided into two parts. One is income-related consumption and the other is non-income related consumption(often called autonomous consumption). Therefore the consumption function can be written as C=A+CY
Output in a Private-Closed Economy • Consumption Determination: Consumption can be divided into two parts. One is income-related consumption and the other is non-income related consumption (often called autonomous consumption). Therefore the consumption function can be written as C = A + c·Y
Output in a Private-Closed Economy Consumption Determination WR2C-A+C-Y where A can be regarded as autonomous consumption and c Y as the income-related consumption. Note that 1>C>0. This 2 indicates that when income increases. the s consumption will- also increase, but with y p less amount( see figure presented in class)s
Output in a Private-Closed Economy • Consumption Determination: C = A + c·Y where A can be regarded as autonomous consumption and c·Y as the income-related consumption. Note that 1 > c > 0. This indicates that when income increases, the consumption will also increase, but with less amount (see figure presented in class)