Income –Consumption and Income-Saving Relationshipfinale (1) Flashcards
(145 cards)
1
Q
•Income refers to disposable income
A
(Yd)
2
Q
•Yd is an important
A
determinant of C and S
3
Q
amounts that households plan
A
to consume at
4
Q
Level of Income (Y)
A
Consumption (C)
5
Q
370
A
375
6
Q
390
A
390
7
Q
410
A
405
8
Q
430
A
420
9
Q
450
A
435
10
Q
470
A
450
11
Q
490
A
465
12
Q
510
A
480
13
Q
households plan
A
to save at various levels of
14
Q
Level of Income
A
Consumption (C)
15
Q
370
A
375
16
Q
390
A
390
17
Q
410
A
405
18
Q
430
A
420
19
Q
450
A
435
20
Q
470
A
450
21
Q
490
A
465
22
Q
510
A
480
23
Q
households plan
A
to consume their entire
24
Q
•The relationship between Yd, C and
A
S can
25
Consumption (Pula)
425
26
there is dissaving
at low levels of income
27
•APC –the fraction
of total income that is
28
Level of
Consumption
29
Income (Y)
(C)
30
370
375
31
390
390
32
410
405
33
430
420
34
450
435
35
470
450
36
490
465
37
510
480
38
1
APC falls as the level of income increases .
39
2
APS increases as the level of income
40
•The proportion or fraction of income saved
is
41
allocated to consumption
or to saving,
42
Level of
Consumpt
43
Income
ion (C)
44
370
375
45
390
390
46
410
405
47
430
420
48
450
435
49
470
450
50
490
465
51
510
480
52
• Where ;
where C is consumption spending, a =
53
MPS
and Y is income
54
• N.B. The saving
function shows
55
relationship between
S and Y
56
the consumption
function
57
NON INCOME DETERMINANTS
OF
58
consumption curve shifts
upward and the
59
saving curve shifts
downward
60
the saving function
shifts
61
•Therefore an increase in taxes will shift
both
62
•4.
Real interest rate
63
•When making
an investment decision, firms
64
consider the marginal
benefit(mb)
65
marginal cost(mc)
of their investment.
66
•STUDENTS TO DO (discuss
the factors that
67
•The investment demand
curve is downward
68
real interest rate and the quantity
of
69
Real domestic
Consumption
70
output (Y)
(C)
71
370
375
72
390
390
73
410
405
74
430
420
75
450
435
76
470
450
77
490
465
78
510
480
79
530
495
80
550
510
81
•What is the equilibrium
output?
82
•Mathematical illustration:
suppose that the
83
•Assume further that planned investment
Ig is
84
1
Calculate equilibrium
85
2
Calculate the consumption
86
3
What happens to equilibrium
87
•n.b.
I = S only at the equilibrium
88
•Equilibrium
income is given by
89
•We get the same equilibrium
income as we
90
•CHANGES
IN EQUILIBRIUM GDP AND THE
91
changes output/income
by
92
initial
change in investment spending
93
•Therefore
we rewrite (1) above as
94
•Y – bY = a +
I
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•Y(1 – b) = a +
I
96
Y
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is the equilibrium
level of income
98
•The equilibrium
level of income associated
99
with investment level
I1 is
100
Y
101
Y
102
I
I
103
Y
104
I
105
•= 1/0.25
= 4
106
the ultimate
change in Y
107
Y
108
I
109
Y
110
•Therefore the multiplier
is
111
•The value of the multiplier
depends on the
112
larger the multiplier
and therefore the higher
113
the equilibrium
GDP
114
•Calculate the multiplier
when the MPC is 0.75,
115
•Adding G
yields a new higher level of
116
• Net Exports and Equilibrium
GDP
117
Level of GDP
Net Exports
118
370
5
119
390
5
120
410
5
121
430
5
122
470
5
123
490
5
124
510
5
125
530
5
126
550
5
127
•Assume that : C= 50 + 0.8Y,
Ig = 30, Xn = 10
128
•A. calculate the equilibrium
level of GDP
129
•B. Calculate the consumption
level and the
130
•C. What happens to equilibrium
GDP if
131
•Assume a consumption
schedule for an open
132
are independent
of national
133
Calculate
Y and C
134
and incomes) between
households,
135
in the flow of expenditures
and incomes: Financial
136
insurance companies
etc.).
137
intermediation: intermediating
between
138
financial
means at their disposal
139
through provision
of guarantees for payments, issuing
140
cheques, provision
of foreign exchange
141
The revised modelhighlights
these roles
142
businesses for
Investment purposes
143
considered to reduce the level
of economic activity,
144
to increase the level of economic
activity, referred to as
145
– Sectors – households, firms
& foreign sector
