Expenditure

To develop an income-expenditure model, it makes sense first to analyze expenditure. We did this in the chapter on measuring national income. We recall from that chapter that expenditure has just four components:

• Consumption expenditure.
• Investment expenditure.
• Government expenditure.
• Net Exports.

With these expenditure categories, we can construct our model of the determination of expenditure. But first, following the hint Keynes got from Malthus, let us look a little longer at the first of the four categories: consumption.

Consumption