EQUILIBRIUM NATIONAL INCOME AND THE AGGREGATE EXPENDITURE FUNCTION:
REMEMEBER:
Consumption is a function of disposable income (income minus net taxes) and net taxes are taxes minus transfer payments.
So, when you add the government to the economy, you have to substitute (income minus net taxes) into the consumption equation!
As such, consumption is a function of income: C = f(Y) (the disposable part is now implicit with the addition of the government)
