Aggregate Expenditures

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Aggregate Expenditure(s)
Chapter 9
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Remember Chapter 8
C I G (-) Net Exports GDP
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Exhibit 1 Consumer Spending and Disposable
Income in the United States
Source Economic Report of the President,
February 1999.
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Effect of Savings

• Savings acts to lower consumption
• Otherwise the Graph of the C function would be
  a 45 degree line.
• The amount of savings is expressed as
• The MPS Marginal Propensity to Save
• The MPC- Marginal Propensity to Consume

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Exhibit 2 Dependence of Consumer Spending on
Disposable Income
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Exhibit 3 The Consumption Function
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Exhibit 5a Marginal Propensities to Consume and
to Save
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Non-Income Sources

• Non-income determinants of consumption
• Net Wealth the more wealth, the more consumption
• Price Level- Increase in price level lowers
  consumption downward- (save more)
• Interest Rate- Rise in interest, consumption
  shifts downward
• Expectations- Expectations in any of the above
  (as opposed to real changes) cause the same
  effect

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Exhibit 5b Marginal Propensities to Consume and
to Save
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Exhibit 6 Shifts in the Consumption Function
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Investment

• Spending on
• New Factories and equipment
• New housing
• Net increase in inventories
• Demand for investment is dependent on interest
  rate

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Exhibit 7 Rate of Return on Golf Carts and the
Opportunity Cost of Funds
Do projects above market rate Of interest
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Exhibit 8 Investment Demand Curve for the
Economy
Higher Interest Rate Less Investment
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Exhibit 9 Autonomous Investment Function
Autonomous means independent. Higher interest,
lower investmentand vice versa
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Exhibit 10 Annual Percentage Changes in U.S.
Real GDP, Real Consumption, and Real Investment
Most variable over time
Source Based on annual estimated found in Survey
of Current Business, U.S. Department of Commerce,
77 (August 1997) and 79 (January 1999).
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Exhibit 11 Autonomous Net Export Function
Exports and imports also autonomous or
Independent of interest rate.
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Exhibit 12 U.S. Spending Components as a
Percentage of GDP
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14.5
67.8
Source Based on estimates from U.S. Dept. of
Commerce, Survey of Current Business, 77 (Aug.
1997) and 79 (Jan. 1999) and Economic Report of
the President, February 1999.