Says that the components of GDP; investment I
, government G
and net exports NX
are independent of income. except the component consumption.
Aggregate consumption = autonomous consumption + marginal propensity to spend(real GDP); = C + mpc(Y).
- Aggregate Expenditure, AE=A+mpc(Y)
- A= total Autonomous expenditure= C+I+G+NX
- multiplierY=A+mpc(Y) Y=m(A)
Prices will not fall to far, because unemployed workers and resources will resist any reduction in their wages