5 Part (a) Consumption function: is the relation of consumption with its determinants. Graphically drawn as:. Mathematically it is written as: C = C + c(Y – T) C: Consumption Spending C: Exogenous Consumption c : Marginal Propensity to Consume (0 < c < 1) Y: Aggregate Income T: Taxes Explaining the main components: Exogenous consumption: factors other than disposable income that affect consumption. So when consumers feel optimistic about their future‚ they will generally
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first part‚ Ca‚ is called autonomous consumption‚ and it does not directly depend on the level of income. The second part‚ by‚ represents the part of consumption that does depend on income. It is the product of the fraction b‚ called the marginal propensity to consume (MPC)‚ and level of income in the economy‚ y. The MPC‚ which has a value of b in our formula‚ tells us how much consumption spending will increase for every dollar that income increases. If b equals 0.7‚ then for every $1 that income increases
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interest rate. D) price level. 2. If Carol’s disposable income increases from $1‚200 to $1‚700 and her level of saving increases from minus $100 to a plus $100‚ her marginal propensity to: A) save is three-fifths. B) consume is one-half. C) consume is three-fifths. D) consume is one-sixth. 3. A decline in disposable income: A) increases consumption by moving upward along a specific consumption schedule. B) decreases consumption
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the interest rate changes. You are given the following information concerning autonomous consumption‚ the magical propensity to consume‚ planned investment‚ government purchases and goods and services‚ and net exports. Ca =1500-10r c=0.6 T=1800 Ip=2400-50r G=2000 NX=-200 a. Compute the value of the marginal propensity to save. 1-c = s 1 - 0.6= .04 Marginal propensity to save is .04 b. Compute the amount of autonomous planned spending Ap‚ given that the interest rate equals 3. Ca
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consumption you calculated‚ what is the marginal propensity to consume (MPC) for this economy? Is this the same as the parameter of the consumption function that represents the marginal propensity to consume? c. Write out the saving function for this economy. (HINT: S = YD – C. Substitute for C from the information above and simplify the right side of the equation). What is the level of saving when YD = 0? Explain how and why this occurs. What is the marginal propensity to save for this economy? How
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AGRICULTURE TUTORIAL SHEET 3 1. What is the aggregate expenditure function? 2. Distinguish between a. Induced and Autonomous consumption. b. The consumption and savings function. c. The average propensity to consume and the average propensity to save. d. The marginal propensity to consume and the marginal propensity to save. 3. How are consumption and savings related? 4. Fill in the blanks in the following table. INCOME CONSUMPTION SAVINGS $1000 $400 2000 900 3000 $1400 4000 MPC MPS APC APS
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equals zero. False. When disposable income equals zero‚ consumption is still positive due to autonomous consumption/consumer confidence/c0. 3. The multiplier is greater than 1 if T = 0 and G = 0. True. If the marginal propensity to consume is less than 1‚ it means that people consume less than 100% of their disposable income. It also implies that the multiplier is greater 1 (you can also write down the formula of the multiplier and indicate c1 is less than 1). The fact that T = 0 and G = 0 is
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Interactions between the Multiplier Analysis and the Principle of Acceleration Author(s): Paul A. Samuelson Reviewed work(s): Source: The Review of Economics and Statistics‚ Vol. 21‚ No. 2 (May‚ 1939)‚ pp. 75-78 Published by: The MIT Press Stable URL: http://www.jstor.org/stable/1927758 . Accessed: 02/03/2012 05:03 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use‚ available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit
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1.6 Conceptual Framework Household: A group of person normally living together and taking food from common kitchen unless the exigencies of work prevented any of them from doing so constitutes a household. Head of the Household: The person in formal charge of the management of the household is the head of the household. He or she need not necessarily be the principal earning member of the household‚ but the customary head of the household decided on the basis of tradition. This means that when
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1. Distinguish between average propensity to consume and marginal propensity to consume. An individuals’ average propensity to consume (APC) measures the proportion of their gross income which is spent on consumption‚ whereas an individuals’ marginal propensity to consume (MPC) is the proportion of each extra dollar of earned income that is/would be spent on consumption. 2. Consider a person earning $1000 a week who consumes $700 of their income. Suppose that when they receive a 20 percent pay
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