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Material Type: Notes; Class: MACROECONOMICS; Subject: Social Sciences; University: Fashion Institute of Technology; Term: Unknown 1989;
Typology: Study notes
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How does the economy works?^ How does the economy works?^ Chapter 9: Pages 152- 158
The Income-^ The Income Pat Yanez, FIT
-Consumption & IncomeConsumption & Income-
-Saving RelationshipsSaving Relationships
-Investment RelationshipInvestment Relationship
i^ )
Chapter 9 Outline^ Chapter 9 Outline
Income-^ Income Four Simplifications....^ Four Simplifications.... 1. A Closed Economy^ 1. A Closed Economy2. Ignore Government2. Ignore Government3. All Saving Is Personal3. All Saving Is Personal4. Net Income Abroad Is Zero4. Net Income Abroad Is Zero Pat Yanez, FIT
-Consumption & IncomeConsumption & Income-
-Saving RelationshipsSaving Relationships
Pat Yanez, FIT
Therefore, GDP =^ Therefore,
GDP = DI = C + S
DI = C + S
We^ call
this^ a^
“private
closed
economy”
Pat Yanez, FIT
Pat Yanez, FIT
Pat Yanez, FIT
Income-^ Income
-Saving RelationshipSaving Relationship
Row# Pat Yanez, FIT [ 1 ]Level of Outputand Income( GDP = DI )
[ 2 ]^ [ 3 ]ConsumptionSaving (S)( C )[ 1 ] - [ 2 ] 1 $
Saving Schedule^40
o Saving
S GDP, DI Saving Schedule 390
Pat Yanez, FIT
Average Propensities
Pat Yanez, FIT
[ 1 ] Row Level of Output # and Income( GDP = DI )
[ 2 ]Consumption( C )
[ 3 ]Saving (S)[ 1 ] - [ 2 ]
[ 4 ]^ [ 5 ]AverageAveragePropensityPropensityto Consume,to Save,( APC )(APS)[ 2 ] / [ 1 ][ 3 ] / [ 1 ]
Pat Yanez, FIT
Marginal Propensities
Δ^ Consumption^ Δ^ Income MPC ==MPC The proportion of any change in income that is consumed Pat Yanez, FIT
is the
marginal propensity to consume (MPC):
Δ^ Saving Δ^ Income
The proportion of any change in income that is savedMPS ==MPS
is the
marginal propensity to save (MPS):
In summary: ConsumptionDisposable IncomeSavingDisposable IncomeChange in ConsumptionChange in Disposable IncomeChange in SavingChange in Disposable Income
APC =APC = APS =^ APS = MPC =^ MPC = MPS =MPS = Pat Yanez, FIT
Pat Yanez, FIT
Consumptiono^45 o^
Disposable Income o Saving
Disposable Income
Graphically Presented...^ Pat Yanez, FIT
Consumptiono^45 o^ oSaving
C Consumptionschedule^ S
C S
Disposable IncomeDisposable Income
SAVING SAVING
DISSAVING DISSAVING
MPC = Slope of C^ MPS = Slope of S
Graphically Presented...^ Pat Yanez, FIT
AVERAGE PROPENSITY TO CONSUMEAVERAGE PROPENSITY TO CONSUME
.^ .^ .^ .^
U.S.CanadaBritain NetherlandsGermany
ItalyJapanFrance Pat Yanez, FIT
Consumptiono^45 o^ oSaving
C S
C S
Disposable IncomeDisposable Income
Shifts in C and S^ Pat Yanez, FIT
Consumptiono^45 o^ oSaving
C^ S
C S
Disposable IncomeDisposable Income
C
C
An^ Anincrease inincrease inconsumption...consumption...
Shifts in C and S^ Pat Yanez, FIT
