Measurement of Aggregate Output:

You may have heard of  the concept gross domestic  product (GDP). which is measured in current prices or in constant prices. Empirically aggregate  output  (Q)  of an economy is  given by GDP  at  constant  prices. Thus GDY at market prices represents PxQ.

GDP  can be measured by three approaches: 

i) sum of  final output  (Q), 

ii)  sum of  facaor income  (Y), and

iii) sum of  final expenditure  (E). 

All three measures  provide  the me value of GDP. Therefore, we will use Y and Q  interchangeably  to  represent aggregate output.

If we subtract net  taxes  (T)  from total income  (Y) we obtain personal disposable  income (Y-T),  which is a  determining  factor  in  consumption expenditure  (C).

While dealing  with  time series data we would use subscript  't'  to represent  time period. For example C_t-1  is  total consumption  for period (t-1).