University of Louisville

Department of Economics

Economics 202

These equations/expressions are always true (definitions of terms are
below each equation, but are not repeated):

(1) **C + S = DI**(C = consumption expenditure, S = savings, DI = disposable income)

(2) **DI = Y - T**(Y = real income (GDP), T = tax revenues)

(3) **AE = C + I + G + (X - M)**(AE = aggregate expenditures, I = autonomous investment, G = government expenditure, X = exports, M = imports)

(4) (MPC = marginal propensity to consume [we sometimes abbreviate it as "m"])

(5) (MPS = marginal propensity to save [we sometimes abbreviate it as "1-m"])

(6) (APC = average propensity to consume)

(7) (APS = average propensity to save [also called the savings rate])

At equilibrium (only) in the fixed price level model of AE
it's true that:

(8) **Y* = C + I + G + (X - M)**(Y* = equilibrium real income (GDP))