W6 - Consumption

Question 1

Marginal propensity to consume

Answer 1

How much more people will spend for every additional dollar of income

Question 2

Autarky

Answer 2

Self-sufficient, someone who doesn’t need the banking system

Question 3

What does the C stand for in GDP

Answer 3

Consumption expenditure (based on g/s by households)
- biggest component of UK GDP but the most volatile

Question 4

Keynesian Consumption function

Answer 4

C = a + by(d)
a = not related to income (saving, wealth)
b = marginal propensity to consume
y(d) = current disposable income (Y-T), Income - Tax

Question 5

Drawback of Keynesian function

Answer 5

Incomplete, more smoother with preference

Question 6

Benefits of Two-period model vs Keynesian model

Answer 6

• Focuses on lifetime not current income
• Interest rates
• Impatience

Question 7

The two period model

Answer 7

Shows how individuals make decisions about consumption and savings over 2 periods
- 1 today (present)
- 2 future (tomorrow)

based on intertemportal decisions

Question 8

Intertemporal Decisions

Answer 8

Benefits don’t depend just on current, also future and long term decisions