MACROECONOMICS UNISA SP2 2012
ASSIGNMENT 2

Q1. The consumption schedule shows the various amounts households plan or intend to consume (spend) at various possible levels of their disposable income (Jackson, et al., 2011). Disposable income that isn’t spent is called ‘savings’.
Consumer confidence measures the degree of optimism that consumers feel about the state of the economy and their personal finances, to forecast future spending.
Figure 1.1 Source: Jackson et al, 2011
When people expect their real income to increase, they spend more of their current income (saving less), increasing current consumption and the aggregate demand curve shifts rightwards. Conversely, when people expect their real income to decrease, they spend less of their current income (saving more), decreasing current consumption and the aggregate demand curve shifts to the left.

Figure 1.2 Source: Jackson et al, 2011
The aggregate expenditure is the sum of expenditures on consumption (C), investment (I), government purchases (G) and net exports (NX).
AE = C + I + G + NX
Figure 1.3 graphs aggregate expenditure. Where the aggregate expenditure line crosses the 450 line, indicates the Gross Domestic Product level.
Gross Domestic Product (GDP) is the total market value of all final goods and services produced in the economy during a specific period (Jackson, et al., 2011).

Figure 1.3 Source: Jackson et al, 2011, p184
The foreign exchange rate refers to the value of the Australian Dollar against a particular foreign currency.
A rise in the foreign exchange rate of the Australian Dollar means Australians pay less to import goods from overseas, so imports would be expected to increase. A rise in the value of the Australian dollar also means foreign countries pay more to import Australian goods, so exports would be expected to decrease. Aggregate expenditure would decrease in