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BALANCED-BUDGET MULTIPLIER: The ratio of the change in aggregate output (GDP) to a change in government spending, which are matched by an equal change in taxes. This is termed a balanced-budget multiplier because the change in spending is matched by the change in taxes and thus the government's budget deficit or surplus is neither increased nor decreased. If the government had a balanced budget before the changes, then it has one after the changes.

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Lesson 12: Elasticity and Demand | Unit 3: Measurement Page: 10 of 25

Topic: Doing The Numbers <=PAGE BACK | PAGE NEXT=>

  • Suppose we have the following price and quantity values for the demand of calling minutes in cellular phones:

    P1 = 10 cents, Q1 = 5 million minutes, P2 = 11 cents, and Q2 = 4.5 million minutes.

  • Plugging theses numbers into the formula gives us:

    elasticity=- 0.105 ÷ 0.095=- 1.105

  • While the quick and dirty elasticity indicates exactly unit elastic demand (1 on the nose), the midpoint formula indicates relatively elasticity demand (1.105).

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AUTONOMOUS CONSUMPTION

Household consumption expenditures that do not depend on income or production (especially disposable income, national income, or even gross domestic product). That is, changes in income do not generate changes in consumption. Autonomous consumption is best thought of as a baseline or minimum level of consumption that the household sector undertakes in the unlikely event that income falls to zero. It is measured by the intercept term of the consumption function or the consumption line. The alternative to autonomous consumption is induced consumption, which does depend on income.

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