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the most important determinant of consumer spending is

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the level of income

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the most important determinant of consumption and saving is the

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level of income

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1200 to 1700; -100 to +100

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consume is 3/5s

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with an MPS of .4, the MPC will be

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1.0 minus

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the MPC can be defined as that fraction of a

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change in income that is spent

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the 45 degree line on graph relating consumption and income shows

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all the points at which consumption and income are equal

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as disposable income goes up the

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APC falls

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the consumption schedule shows

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the amounts households plan or intend to consume at various possible levels of aggregate income; consumption and income

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the consumption schedule relates

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consumption to the level of disposable income

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a decline in disposable income

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decreases consumption by moving downward along a specific consumption schedule

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the APC is calculated as

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consumption/income

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the consumption schedule in above indicates that

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up to a point consumption exceeds income, then falls below

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the consumption schedule is drawn on assumption that as income increases consumption will

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increase absolutely, but decline as a percentage of income

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APC is

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greater than 100%

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consumption and saving schedules reveal that the

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MPC is greater than 0 but less than one

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as disposable income increases, consumption

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and saving both increase

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the APC indicates

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% of total income that will be consumed

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relationship between consumption and disposable income

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a direct and relatively stable relationship exists

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MPC is .8 and DI is 200

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consumption and saving not determined

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MPC for economy

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the slope of consumption schedule or line

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c=20 + .9Y.. MPC?

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.90

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c=20 + .9Y.. 800 DI

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60

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cause movement down along econs consumption schedule

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decrease in disposable income

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A & B graph

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MPC is greater in A than in B

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A&B graph - where is consumption schedule intersects 45

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APC is 1

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10000 and .75

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14500

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MPC is .8

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spend 8/10s of any increase

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suppose a familys consumption exceeds DI;

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APC is greater than 1

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one can determine the amount of any level of totalt income that is consumed by

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multiplying total income by APC

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consumption and saving schedules reveal

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saving varies directly with level of DI

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dissaving means

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that households are spending more than their current incomes

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the saving schedule is drawn on assumption that incomes increases

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saving will increase absolutely and as a % of income

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at the point where consumption schedule intersects 45 line

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saving is 0

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saving schedule is such that as aggregate income increases by certain amount saving

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increases, but by a small amount

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if the consumption schedule is linear

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saving schedule will also be linear

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given the consumption schedule it is possible to graph the relevant saving schedule by

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plotting vertical differences between consumption schedule and 45 line

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aggregate income decreases, APC

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will increase, but APS will decrease

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if saving schedule is straight line

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MPS must be constant

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cause a movement up along an econs saving schedule?

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increase in disposable income

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US stock market boomed, causing US consumption to rise;

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wealth effect

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the wealth effect is shown graphically as a

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shirt of the consumption schedule

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a movement from b to a along C1 might be caused by a

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recession

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a shift of the consumption schedule from C1 to c2 might be caused by a

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wealth effect of an increase in stock market prices

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a movement from a to b along C1 might be caused by a

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increase in real GDP

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a shift of the consumption schedule from c2 to c1 might be caused by a

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reverse wealth effect caused by a decrease in stock market prices

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upward shirt of saving schedule

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APC has decreased and APS has increased

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NOT tend to shift consumption schedule upward

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expectation of a future decline in consumer price index

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if consumption schedule shifts upward and shift was not caused by tax change, saving schedule

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will shift down

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not cause consumption schedule to shift

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a change in consumer income

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increase in personal taxes will shift

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both consumption and saving schedules downward

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some reason households become increasingly thrifty, show this by

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upshift of saving schudule

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s1 to s2

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MPS increased

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if consumption schedule shifts upward this means that

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APC is now higher at each level of DI

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assume econ consumption and saving schedule simultaneously shift down;

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increases in personal taxes

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C1 to C2

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MPC and APC at each income level have both increased

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DI - 200 C - 205 WHAT IS MPC

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.8

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at the 200 level of DI

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dissaving is $5

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if DI was 325 we would expect consumption to be

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305

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DI - 0 saving - -10 MPC?

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.8

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100 level of income; APS?

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.1

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plotted on graph, slope of saving schedule

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.2

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As disposable income increases, ____ and ______ both increase

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consumption and savings

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graph; the MPS is equal to

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CD/BD

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graph; at disposable income level D, the APS equal

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CD/D

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graph; at disposable income level D, consumption is

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equal D minus CD

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graph; consumption equals disposable income when

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disposable income is B

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graph; the break even level of DI

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100

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investment demand curve portrays an inverse (negative) relationship between

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the RIR and investment

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the investment demand slopes downward and to the right because lower RIR

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enable more investment projects to be undertaken profitably

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other things equal, a decrease in the RIR wil

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move the economy downward along its existing investment demand curve

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80000 and 96000; %

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20%

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2000 and 2300

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15%

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if the firm borrow funds at interest rate of 10%

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purchase the machine because expected rate of return exceeds the interest rate

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the relationship between the RIR and investment is shown by the

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investment demand schedule

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given the expected rate of return on all possible investment opportunities in econ

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an increase in RIR will reduce the level of investment

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a decline in RIR will

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increase the amount of investment spending

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immediate determinants of investment spending are the

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expected rate of return on capital goods and the real interest rate

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the investment demand curve suggests

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there is an inverse relationship between the RIR and investment

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if business taxes are reduced and RIR increases

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the level of investment might either increase or decrease

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other things equal, 10% decrease in corporate income taxes

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shift the investment demand curve to right

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other things equal, the RIR and investment are

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inversely related

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the investment demand curve will shift to the right as result of

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businesses becoming more optimistic about future business conditions

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other things equal, if the RIR falls and business taxes rise

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we will be uncertain as to the resulting change in investment

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a rightward shift of investment demand curve might be caused by

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an increase in the expected rate of return on investment

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the RIR is

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the percentage increase in purchasing power that the lender receives on a loan

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when we draw an investment demand curve we hold constant all of the following except

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the interest rate

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high rate of inflation is likely to cause a

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high nominal interest rate

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if the RIR in econ is i and expected rate of return on additional investment other things equal

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investment will take place until i and r are equal

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shift investment demand curve from ID1 to ID2

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higher expected rates of return

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shift investment demand curve from ID1 to ID3

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lower expected rates of return on investment

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increase investment, while leaving an existing investment demand curve ID2 in place

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a lower interest rate

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investment spending in US is

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more variable than real GDP

Econ chp 9 – Flashcards

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