1. Income and Expenditure
Lesson 26
Section 16

2. Introduction to the Multiplier
When money is spent, there can be a multiplier effect based on how it is spent, and how much this changes the marginal propensity to consume and save.
When money is spent, it doesn’t stop there
My spending becomes your income, your spending becomes my income
Velocity of money
Marginal Propensity to Consume
The increase in consumer spending when income increases by $1.
MPC = Change in spending / change in income
Marginal Propensity to Save
1-MPC
Autonomous change in aggregate spending
Initial change in spending

3. Consumer Spending Disposable Income Consumption Function
Individual households consumption varies by disposable income
Autonomous Consumer Spending
Amount a household spends even without disposable income
Aggregate Consumption Function
Relationship between aggregate disposable income and aggregate consumer spending

4. Investment Spending Interest Rate and Investment Spending
Rates up, saving up; rates down, spending up
Expected Future Real GDP, Production Capacity, and Investment Spending
Inventories and Unplanned Investment Spending