AD is aggregate demand, C is consumption, I is investment, G is government spending and NX is net exports … but why is income Y?
Where did this nomenclature come from? What is the reason for using Y to denote income?
Some people argue that, simply, I is already used for investment so we must use Y for income. But why Y? Why don’t we use another letter instead? Income doesn’t even have a Y in it.
Could it be that we use Y because income is a dependent variable? In mathematical notation we use y = f(x) to denote a situation where a dependent variable is determined by the independent variable. This would seem to be the reason as our AD equation mirrors this: Y = AD = C + I + G + (X – M).
Similarly, it could be that income was first placed on the y-axis in economics graphs, and we have stuck with it since then.
Others contend that we use Y because that letter is phonemically or orthographically related to I. For example, in French, Y is known as Greek i.
Some posit that the use of the Y notation originates from post-Keynesians such as Michal Kalecki in 1937.
However, as pointed out over on Gregory Mankiw’s blog, it seems that the Y notation for income dates back to an old letter from John Maynard Keynes to John Hicks on the 31st of March 1937 in which Keynes writes:
“On one point of detail. I regret that you use the symbol I for Income. One has to choose, of course, between using it for income or investment. But after trying both, I believe it is easier to use Y for income and I for investment.”
So, there you have it, we use Y for income because Keynes told us to!!