National Income (1 Viewer)

[jayz]

Y=C+I+G+(X-M) does Y=GDP?
is C an independant variable, does it relate to IGX or STM?

thanks

 

[timmii]

Y = C+I+G+(X-M) means income (GDP) equals consumption, investment, government expenditure and net exports. You will usually be given figures or at least equations to work this out if necessary.

Usually you will just use the equation to predict how a change in economic conditions will affect the economy as a whole.

E.g if consumption and investment is increased by a fall in interest rates, you can use the equation (and concomitant graph) to demonstrate how GDP rises. Its merely a means by which the main determinants of income (and thus economic growth) can be analysed to ascertain the state of the economy.

To simplify things, just draw a pair of axes and a line....shift the line up or down as necessary. Equilibrium is where AD = AS. Aggregate Supply is a 45 line from the origin.

 

[Bambul]

From my understanding C = Y - (S+T)

You take household income and take away tax. You now have household disposable income. Part of it goes to consumption and the other part is saved. So if you subtract savings from disposable income you get consumption, and that is what the equation means.

 

[timmii]

I've seen that before, but I saw it with M included in there as well? I.e we want to know how much consumption is directed towards domestic goods...?

I saw it when we were doing multipliers, which I *blush* can't remember either... k = 1/(1-ct + m) ?

*sigh* in one ear out the other unfortunately.....but now have another set of eco exams to study for