The gross domestic product (GDP) is one the primary indicators
used to gauge the health of a country’s economy. It represents
the total dollar value of all goods and services produced over a
specific time period – you can think of it as the size of the economy.
GNP is a measure of a country’s economic performance, or what
its citizens produced (i.e. goods and services) and whether t
hey produced these items within its borders.
The Consumption Function
J. Bradford DeLong
A key tool in building up economists’ standard model of the business cycle is the so-called consumption function: an algebraic relationship between national income and consumption spending that tells us what, for each possible level of national income, the level of consumption spending will be.
We build up the consumption function from two facts: (1) that there is a baseline level of consumption spending that would continue even if incomes were zero, and (2) that for each $1 increase in total incomes, consumption spending increases by a smaller amount–say $c’.
The parameter c’ of the consumption function is called the marginal propensity to consume.