1. AGGREGATE DEMAND, DOMESTIC PRODUCT AND NATIONAL INCOME Asst. Prof. Dr
AGGREGATE DEMAND, DOMESTIC PRODUCT AND NATIONAL INCOME Asst. Prof. Dr. Serdar AYAN

2. Aggregate Demand, Domestic Product and National Income
Aggregate Demand = the total amount that all consumers, business firms, and government are willing to spend on final goods and services
Consumer Expenditure = the total amount spent by consumers on newly produced goods and services

3. Aggregate Demand, Domestic Product and National Income
Investment Spending = the sum of the expenditures of business firms on new plant and equipment and households on new homes.
Government Purchases = the goods and services purchased by all levels of government.

4. Aggregate Demand, Domestic Product and National Income
Net Exports = the difference between Turkiye. exports and Turkiye imports.
Indicates the difference between what we sell to foreigners and what we buy from them
AD = C + I + G + (X - IM)

5. Aggregate Demand, Domestic Product and National Income
National Income = the sum of the incomes that all individuals in the economy earned in the forms of wages, interest, rents, and profits.
Excludes government transfer payments

6. Aggregate Demand, Domestic Product and National Income
Disposable Income = the sum of the incomes of all the individuals in the economy after all taxes have been deducted and all transfer payments have been added
DI = GDP - Taxes + Transfers = Y - T

7. The Circular Flow of Spending, Production and Income
Circular flow chart: shows the relationship of the different components of expenditure and income
National income = domestic product

8. OF EXPENDITURE AND INCOME
THE CIRCULAR FLOW
OF EXPENDITURE AND INCOME .

9. Consumer Spending and Income: The Important Relationship
A scatter diagram with U.S. data shows the close relationship between real disposable income and real consumer spending.

10. CONSUMER SPENDING AND DISPOSABLE INCOME

11. Consumer Spending and Income: The Important Relationship
When the data are converted into a consumption function diagram -- with income on one axis and consumption on the other -- the relationship is almost linear, with a slope of about 0.9.

12. A CONSUMPTION FUNCTION
Copyright © 2000 by Harcourt, Inc. All rights reserved.

13. The Consumption Function and the Marginal Propensity to Consume
Marginal Propensity to Consume =  consumption   disposable income

14. CONSUMPTION AND INCOME IN A HYPOTHETICAL ECONOMY
Year
(1)
Consumption, C
$2,700
3,000
3,300
3,600
3,900
4,200
(2)
Disposable
Income, DI
$3,200
4,000
4,400
4,800
5,200
(3)
Marginal
Propensity to
Consume, MPC
0.75
1994
1995
1996
1997
1998
1999
Copyright © 2000 by Harcourt, Inc. All rights reserved.

15. Movements Along versus Shifts of the Consumption Function
 disposable income  movement along a consumption function
 any other variable that affects consumption  shift in the entire consumption function

16. SHIFTS OF THE CONSUMPTION FUNCTION1 2 A
Real Disposable Income R e a l o n s u m r S p d i g
Movements along
consumption function
Shifts of
consumption
function
Copyright © 2000 by Harcourt, Inc. All rights reserved.

17. Other Determinants of Consumer Spending
Wealth
Price level
Expectations of future income