Unit 24 Flashcards
Define average propensity to consume.
How is it calculated?
Average propensity to consume is the proportion of total income spent.
It is calculated by C/Y.
Define average propensity to save.
How is it calculated?
Average propensity to save is the proportion of total income saved.
It is calculated by S/Y.
Define consumption.
Consumption is the total expenditure by households on goods and services over a period of time.
What is the consumption function?
The consumption function is the relationship between the consumption of households and the factors which determine it.
What is disposable income?
Disposable income is household income over a period of time including state benefits, less direct taxes.
What is a durable good?
Durable goods are goods which are consumed over a long period of time such as a television set or a car.
Define marginal propensity to consume.
How it is calculated?
Marginal propensity to consume is the proportion of a change in income which is spent.
It is calculated by change in C/ change in Y.
Define marginal propensity to save.
How is it calculated?
Marginal propensity to save is the proportion of a change in income which is saved.
It is calculated by change in S/ change in Y.
What are non-durable goods?
Non-durable goods are goods which are consumed almost immediately such as an ice cream or a packet of washing powder.
What is the savings function?
The savings function is the relationship between the savings of households and the factors which determine it.
Define saving (personal).
The portion of households’ disposable income which is not spent over a period of time.
What is the wealth effect?
The wealth effect is the change in consumption following a change in wealth.
