Page 71 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes planned-investments to be fixed and not changing with change in income. This makes the
investment curve parallel to the x-axis. (Figure 4.2)
By combining Figure 4.2 with the Figure 4.1, we can get the 'aggregate spending' (C+I) curve.
The two are combined in the Figure 4.3.
Figure 4.2

Y
Planned
I

I

X
O Aggregate
income (Y)

Figure 4.3

C+ I

Y
Aggregate C
Exp.
(AE)

I

C

I

X
O Aggregate
income (Y)
C+I curve is the Aggregate Expenditure (AE) curve. It is the vertical sum of I and C curves. The
C+I curve is parallel to the C curve because investment spending is imagined to be constant and
does not change with the change in aggregate income (Y).

Saving Function

The relationship between income (Y) and saving (S) is referred to as the saving function. Since Y
= C + S and S = Y - C, the saving function can be derived in the following manner:
Given S = Y - C
and C = a + bY

66 LOVELY PROFESSIONAL UNIVERSITY