Consumption 1

Background

One of the major concerns of Macroeconomics is about
why output fluctuates or economic growth is uneven. An
understanding of what causes output to fluctuate will in turn
give us a better understanding of the appropriate measures
that could be used to help stabilize the economy.

You will recall that:
(i)

AD = C + I +G (for a closed economy); and
AD = C + I + G + NX (for an open economy)

(ii)
Equilibrium is achieved when aggregate demand is equal to
aggregate output

Y = AD = C + I + G (for a closed economy);
Y = AD = C + I + G + NX (for an open economy)