C3 HANDOUT

i. Aggregate demand = aggregate supply (Ad = As)

ii. Leakages = injection (I = S)

APC = Consumption = C
Income Y
APS + APC = 1
APS = Saving = S
Income Y

MPC = Change in consumption = ∆ C

Change in income ∆Y
MPC + MPS = 1
MPS = Change in saving = ∆ S
Change in income ∆ Y

APT = Total tax = ∑ tax MPT = Change in tax = ∆T

National income Y Change in income ∆Y

APM = Total imports = ∑M MPM = Change in import = ∆M

National income Y Change in income ∆Y

- According to the Keynes, the break-even point occurs when

i. Y=C
ii. S=0
iii. APC = 1 (this is because all income is spend)
iv. APS = 0 (this is because there is no savings)

C = a + bYd
C = total consumption
a = autonomous consumption
b = slope or MPC
Yd = consumption
Yd = disposable income

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 C3 HANDOUT

S = - a + (1-b)Yd
S = total saving
- a = autonomous saving @
dissaving
(1-b) = slope or MPS
Yd = disposable income

Accelerator principle W = ∆ I / ∆Y

Net Investment = w (∆Y) = w (Y1 –Y2)

Gross Investment = Net Investment + Depreciation
= w (∆Y) + R

AGGREGATE EXPENDITURE INJECTION LEAKAGES

APPROACH APPROACH
AS=Y INJECTION = I + G + X
AD=C+I+G+ (X-M) LEAKAGES = S + T + M
1 SECTOR ECONOMY
Y=C+S I=S
2 SECTOR ECONOMY
Y=C+I I=S
3 SECTOR ECONOMY
Y=C+I+G I + G=S + T
4 SECTOR ECONOMY
Y = C + I + G + (X-M) I + G + X=S + T + M

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