Aggregate Expenditure (AE) and Income

• o Understand the components of aggregate expenditure (AE) - Consumption, Investment, Government Purchases, Net Exports
• o Determination of equilibrium income & expenditure (in the Aggregate Income-Aggregate Expenditure Model)
• o Marginal propensity to consume (MPC) and Marginal propensity to save (MPS)
• o Multipliers - Government Expenditure multiplier & Tax multiplier (Note: The Government Expenditure multiplier is larger than the tax multiplier of a same-sized change in government spending or in taxation because only part of the tax change is spent (i.e., the tax change is first multiplied by the MPC))
• Understand how fiscal policy works and the impact of the multiplier
• Understand how monetary policy works and the impact of the multiplier
• Understand gross Investment, depreciation and net investment
• Definition of the real interest rate and the nominal interest rate
• Calculation of the real interest rate
• Loanable funds market
• Demand for & supply of loanable funds
• Understand the factors that influence demand and supply of loanable funds
• Determination of the real interest rate, savings and investment.
• Understand the role of government (budget) surplus & government (budget) deficit in loanable funds market