ECON 102 - 6.1 (The Simplest Short Run Macro Model) + Consumption Function + Savings Function

question

Major macroeconomic variables

answer

YUPie

question

What are the factors of national income?

answer

GDP = C + I + Y + (X-IM)

question

What is another way of saying GDP?

answer

Aggregate Expenditure (AE)

question

What is the goal of this macromodel?

answer

Finding the relation between the general price level (P) and the national income (Y).

question

Desired vs. Actual Variables

answer

Desired = Intended, planned, no subscript
Actual = actual, measured by NIEA

question

Autonomous Variable

answer

exogenous variable that doesn't depend on Y; not a function of Y; value is given

question

Example of Autonomous Variable

answer

Exports; as they depend on foreign Y

question

Induced Variable

answer

Endogenous variable that depends on Y, are a function of Y

question

Example of Induced Variable

answer

imports; depend on Canada's Y

question

What are our assumptions for this chapter?

answer

All ceteris paribus variables are held constant (wealth, expectations, interest rates)

question

What is the relationship between disposable income (Yd) and desired income?

answer

Positive; direct

If disposable income goes up, desired consumption goes up.

question

Disposable Income (Yd)

answer

amount of income households receives after paying tax

question

Permanent Income

answer

the amount of income expected overtime.

question

What determines the amount of disposable income households decide to consume and the amount they want to save?

answer

1. Consumption Function
2. Savings Function

question

Consumption

answer

Disposable income spent on consumer goods

question

Savings

answer

Disposable income not spent for consumer goods.

question

Consumption Function

answer

the relationship between consumption spending and disposable income

C = f(Yd, ceterus paribus)

question

"WEI" Variables

answer

ceteris paribus variables; wealth, expectations, interest rates, disposable income

question

45 degree line on Consumption Function Graph

answer

where consumption equals disposable income at any point along that line (Y = C = E)

question

Break Even Income point on Consumption Function Graph

answer

where Y = C (point in which you begin to save)

question

Desired Expenditures also is represented by

answer

Consumption (E=C)

question

Dissavings on Consumption Function Graph

answer

where Y = 0, C = a (a is negative savings; borrowing)

question

Five Characteristics of Consumption Function

answer

1. Y increases and C increases at decreasing rate or constant.
2. Dis-savings
3. Breakeven Income
4. Desired Savings
5. MPC = slope

question

Slope of the Consumption Function (b)

answer

MPC = ΔC/ΔYd

Usually positive to represent the positive relationship between C and Yd.

question

When C > Yd, what is the desired savings? (+ or -)

answer

Negative.

question

When C < Yd, what is the desired savings? (+ or -)

answer

Positive.

question

Consumption Function Equation

answer

C=a+bYd

a = dissavings
b = slope of consumption function = MPC

question

Average Propensity to Consume

answer

proportion of disposable income that households want to consume: C/Yd

question

Marginal Propensity to Consume

answer

How much of 1 additional dollar of income gets spent: ΔC/ΔYd

question

If the MPC is constant..

answer

the MPC is the same at any level of income.

question

Disposable Income calculated by..

answer

C(onsumption) + S(avings)

question

Relationship between Saving and Consumption Propensities

answer

APS + APC = 1, lowest can be 0
MPS + APC = 1, lowest can be 0

question

Shifts in Consumption Function

answer

Movement along the curve = change in independent variable (Yd) (induced)

Shift of the curve = change in ceteris paribus variables (autonomous)

Increase in Consumption = Curve shifts up
Decrease in C = curve shifts down

question

Savings Function

answer

How to decide how much to save; parallel to consumption

Yd = C + S

Positive Yd = + Savings

question

Consumption Calculated by

answer

a + b(Yd)

question

Savings Calculated By

answer

=a + (1-b)Yd

question

Which of the ceteris variables have a direct influence on Consumption?

answer

Wealth and Expectations

question

Wealth is calculated by..

answer

Assets - Liabilities

question

How do expectations have a direct relationship to consumption?

answer

When we are optimistic about the future, more consumption!

question

Why does interest rates have an inverse relation to Consumption?

answer

ex.) Low interest rates, high consumption

1 of 40

question

Major macroeconomic variables

answer

YUPie

question

What are the factors of national income?

answer

GDP = C + I + Y + (X-IM)

question

What is another way of saying GDP?

answer

Aggregate Expenditure (AE)

question

What is the goal of this macromodel?

answer

Finding the relation between the general price level (P) and the national income (Y).

question

Desired vs. Actual Variables

answer

Desired = Intended, planned, no subscript
Actual = actual, measured by NIEA

question

Autonomous Variable

answer

exogenous variable that doesn't depend on Y; not a function of Y; value is given

question

Example of Autonomous Variable

answer

Exports; as they depend on foreign Y

question

Induced Variable

answer

Endogenous variable that depends on Y, are a function of Y

question

Example of Induced Variable

answer

imports; depend on Canada's Y

question

What are our assumptions for this chapter?

answer

All ceteris paribus variables are held constant (wealth, expectations, interest rates)

question

What is the relationship between disposable income (Yd) and desired income?

answer

Positive; direct

If disposable income goes up, desired consumption goes up.

question

Disposable Income (Yd)

answer

amount of income households receives after paying tax

question

Permanent Income

answer

the amount of income expected overtime.

question

What determines the amount of disposable income households decide to consume and the amount they want to save?

answer

1. Consumption Function
2. Savings Function

question

Consumption

answer

Disposable income spent on consumer goods

question

Savings

answer

Disposable income not spent for consumer goods.

question

Consumption Function

answer

the relationship between consumption spending and disposable income

C = f(Yd, ceterus paribus)

question

"WEI" Variables

answer

ceteris paribus variables; wealth, expectations, interest rates, disposable income

question

45 degree line on Consumption Function Graph

answer

where consumption equals disposable income at any point along that line (Y = C = E)

question

Break Even Income point on Consumption Function Graph

answer

where Y = C (point in which you begin to save)

question

Desired Expenditures also is represented by

answer

Consumption (E=C)

question

Dissavings on Consumption Function Graph

answer

where Y = 0, C = a (a is negative savings; borrowing)

question

Five Characteristics of Consumption Function

answer

1. Y increases and C increases at decreasing rate or constant.
2. Dis-savings
3. Breakeven Income
4. Desired Savings
5. MPC = slope

question

Slope of the Consumption Function (b)

answer

MPC = ΔC/ΔYd

Usually positive to represent the positive relationship between C and Yd.

question

When C > Yd, what is the desired savings? (+ or -)

answer

Negative.

question

When C < Yd, what is the desired savings? (+ or -)

answer

Positive.

question

Consumption Function Equation

answer

C=a+bYd

a = dissavings
b = slope of consumption function = MPC

question

Average Propensity to Consume

answer

proportion of disposable income that households want to consume: C/Yd

question

Marginal Propensity to Consume

answer

How much of 1 additional dollar of income gets spent: ΔC/ΔYd

question

If the MPC is constant..

answer

the MPC is the same at any level of income.

question

Disposable Income calculated by..

answer

C(onsumption) + S(avings)

question

Relationship between Saving and Consumption Propensities

answer

APS + APC = 1, lowest can be 0
MPS + APC = 1, lowest can be 0

question

Shifts in Consumption Function

answer

question

Savings Function

answer

How to decide how much to save; parallel to consumption

Yd = C + S

Positive Yd = + Savings

question

Consumption Calculated by

answer

a + b(Yd)

question

Savings Calculated By

answer

=a + (1-b)Yd

question

Which of the ceteris variables have a direct influence on Consumption?

answer

Wealth and Expectations

question

Wealth is calculated by..

answer

Assets - Liabilities

question

How do expectations have a direct relationship to consumption?

answer

When we are optimistic about the future, more consumption!

question

Why does interest rates have an inverse relation to Consumption?

answer

ex.) Low interest rates, high consumption

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order

ECON 102 – 6.1 (The Simplest Short Run Macro Model) + Consumption Function + Savings Function

Order an Essay Now & Get These Features For Free: