ECON6901 Ch27 - Basic Macroeconomic Relationships
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What is disposable income?
It's the income you take home after taxes
What kind of relationship are consumption and saving?
Consumption and saving are determined by what?
What's the equation for disposable income?
DI = C + S = 1
What is the consumption schedule?
Planned household spending
What is the saving schedule?
- Disposable income minus consumption
- Dissaving can occur
The 45 degree line on the graph of consumption and disposable income represents what?
Equilibrium and when all disposable income is spent
When the trend line falls below the equilibrium line on the graph of consumption and disposable income, what does that mean?
Some saving has occurred.
What is average propensity to consume (APC)?
Fraction of total income consumed
What is average propensity to save (APS)?
Fraction of total income saved
What is the equation for average propensity to consume (APC)?
APC = consumption/income
What is the equation for average propensity to save (APS)?
APS = saving/income
What is the marginal propensity to consume (MPC)?
Proportion of a change in income consumed
What is the marginal propensity to save (MPS)?
Proportion of a change in income saved.
What is the equation for marginal propensity to consume (MPC)?
MPC = change in consumption/change in income
What is the equation for marginal propensity to save (MPS)?
MPS = change in saving/change in income
MPC and MPS also represent what on the consumption and saving lines respectively?
Wealth depends on what?
Flow of income and consumption
What are some nonincome determinants?
- Real interest rates
What is the direction of the investment demand curve?
What are being compared on the investment demand curve?
- Expected rate of return and real interest rate (r, i)
What can cause shifts of investment demand?
- Acquisition, maintenance, and operating costs
- Business taxes
- Technological change
- Stock of capital goods on hand
- Planned inventory changes
What would you like to do?
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