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    Pengantar Makro - Chapter 3

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    Pengantar Makro - Chapter 3

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    Pengantar Makro - Chapter 3 (5)

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    Pengantar Makro - Chapter 3

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    AGGREGATE

    EXPENDITURES
    (AE) &
    NATIONAL INCOME
    (Y)
    AGGREGATE EXPENDITURES (AE)

     Aggregate Expenditure Function :

    A function that describes the


    relationship between national income
    and aggregate expenditure that is
    intended to be spent on purchasing
    domestic output.

    AE = C + I + G + (X – M)
    CONSUMPTION FUNCTION
     The main factor that determines the size of
    household expenditure is the amount of
    disposable income (Yd) where Yd = C + S

     The consumption function is

    C = C0 + MPC (Yd)
    C0 = Autonomous consumption
    MPC= Marginal Propensity to Consume
    Yd = Disposable Income
    Average dan Marginal
    Propensities to Consume

    APC= C / Yd
    MPC= ∆C / ∆Yd
    Savings Function
     Yd = C + S,
    C = C0 + MPC(Yd)
     Yd = C0 + MPC(Yd) + S
    Yd - MPC (Yd) = C0 + S
    (1-MPC) Yd = C0 + S
    MPS (Yd) = C0 + S

    S = - C0 + MPS (Yd)
    Average&Marginal propensity to save

     APS = S / Yd
     MPS = ∆ S / ∆ Yd

     MPSand MPC relationship


    MPS + MPC = 1
    APC + APS = 1
    Table 1 Example of APC and MPC
    calculations
    Yd C APC  Yd C MPC S
    0 100 0 -100
    100 180 1.80 100 80 0.80 -80
    400 420 1.05 300 240 0.80 -20
    500 500 1.00 100 80 0.80 0
    1000 900 0.90 500 400 0.80 +100
    2000 1700 0.85 1000 800 0.80 +300
    3000 2500 0.83 1000 800 0.80 +500
    4000 3300 0.83 1000 800 0.80 +700

    PROVE IT! Function: C = 100 + 0.8Yd


    Figure 1 Consumption and Savings
    Function

    C C=Yd

    C
    Yd

    S
    S
    450 Yd
    500 Yd
    Important features of the
    consumption function
    1. break even level
    Yd = C  APC = 1

    2. Below the breakeven level.


    C > Yd  APC > 1  dissaving (saving negative)

    3. Above the breakeven level


    C < Yd  APC < 1  Saving (saving positive)

    4. 0<MPC<1 at every income level


    Relationship between Yd and Y

    Yd = Y + Tr – Tx

    C = C0 + MPC (Y + Tr – Tx)

    Disposable Income (Yd) is equal to


    national income (Y) plus Transfer
    Payment (Tr) and minus tax (Tx)
    Aggregate Expenditure Function (AE)
     AE = C + I + G + (X – M)
    C = C0 + MPC (Yd)

     AE = C0 + MPC (Yd) + I + G + (X – M)
    AE = C0 + I + G + (X–M) + MPC (Yd)

    AE = C0 + I + G + (X – M) + MPC (Y+Tr-Tx)
    C0 + I + G + (X – M) = AE0,

     AE = AE0 + MPSpend (Y)

    MPSpend = ∆AE / ∆ Y
    Table 2. Equilibrium of National
    Income (Billions of Rupiah)
    Y C=100 I G (X– M) AE=C+I+
    +0.6Y =240-0.1Y G+(X–M)
    100 160 250 410 230 1050
    400 340 250 410 200 1200
    500 400 250 410 190 1250
    1000 700 250 410 140 1500
    2000 1300 250 410 40 2000
    3000 1900 250 410 60 2500
    4000 2500 250 410 160 3000
    5000 3100 250 410 260 3500
    Figure 2. Equilibrium of National
    Income
    AE
    AE=Y

    AE

    AE Y=AE

    450
    Y
    Ye
    Determining the Equilibrium of
    National Income
     National income Equilibrium is reached
    when: AE = Y

     If AE > Y: the company will increase


    production, so Y increases.

     If AE < Y: Some of the products produced by


    the company are not sold, then the company
    will reduce production, so that Y falls.
    Practice

    the economic condition of country A :


    Autonomous Consumption = 800

    Investment = 700

    Gov Expenditure= 600

    Tax = 50 + 0.2Y

    Export = 1000

    Import = 350

    Marginal Propensity to Consume (MPC) = 0.6

    Based on the information above:


    a.Determine the national income (Y) when the
    equilibrium condition occurs!
    b.Calculate consumption expenditure (C) at
    equilibrium!
    Homework (Assignments)!!

     Consumption function  C = 200 + 0,75 (Y – T)


     Investment (I) = 100
     Gov Spending (G) = 100
     Tax (T) = 100
     Net Export (NX) = 0

    What is national income at equilibrium?


    TERIMA KASIH

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