Aggregate Demand - Components (1 Viewer)

[dude431]

Is it necessary to know how to calculate each individual component of aggregate demand? I'm looking at Riley here, page 128-129.

For example, to calculate the consumption component:
C = C* + cY

Do we need to know this? As far as I'm concerned, the dot-point in the HSC syllabus only requires us to know the general AD equation without needing to know how to mathematically derive each individual component of it.

 

[Sarah168]

it might be useful to know when calculating the multiplier. Especially when the question concerns an increase in autonomous investment or another type of aggregate demand

 

[AGB]

you dont need to know about the consumption function in that much depth... if u understand the aggregate demand equation and what it means, you will be fine...

 

[dude431]

Right. I was thinking that myself, since our school uses Dixon (which doesn't cover each individual component in that much depth).

 

[overwhelming]

Originally posted by natstar
Im really confused about what the mulitiplier is. Someone care to explain

the multiplier effect refers to the 'multiplied' increase in the level of national income due to a change in one of the components of AD (C,I,G,(X-M)).