Wealth and Other Influences

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Wealth and Other Influences A further important determinant of the amount of consumption is wealth. Consider two consumers, both earning S50,000 per year. One has $200,000 in the bank, while the other has ~o savings at all. The first person may consume part of wealth, while the second’ , has no wealth to draw down. The fact that higher wealth leads […]

Current Disposable Income.

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Current Disposable Income. Figure 22-6 shows how closely consumption followed current disposable income over the period 1929-1999. The only period men income and consumption did not move in tandem was during World War II, when goods were scarce ‘and rationed and people were urged to save help the war effort. Both observation and statistical studies show that the current level of […]

NATIONAL CONSUMPTION BEHAVIOR

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NATIONAL CONSUMPTION BEHAVIOR Up to now we have examined the budget patterns and consumption behavior of typical families at different incomes. Let’s now consider consumption for the entire nation. This transition from household behavior to national trends exemplifies the methodology of macroeconomics: We begin by examining economic activity on the individual level and then add lip or aggregate the totality of individuals […]

Brief Review of Definitions

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Brief Review of Definitions Let’s review briefly the main definitions we have learned 1. The. consumption function relates the of consumption to the level of disposable income. 2. The saving function relates saving to disposable income. Because what is saved equals what is not consumed, and consumption schedules are mirror  3. The marginal propensity to consume (MPC) i, the amount 01 extra consumption […]

The Marginal Propensity to Save

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The Marginal Propensity to Save Along with the marginal propensity to consume goes its mirror image. the marginal propensity to save. or MPS. The marginal propensity to save is defined as the fraction of an extra dollar of disposable income that goes to extra saving are MPC and MPS related like mirror images? Recall that. disposable income equals consumption plus saving. This […]

Marginal Propensity to Consume as Geometrical Slope

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Marginal Propensity to Consume as Geometrical Slope We now know how to calculate the MPC from data on income and consumption. Figure 22-5 shows . how we can calculate the MPC graphically. Near points Band C a little right triangle is drawn. As income increases by $1000 from point B to point C, the . amount of consumption rises by […]

The Marginal Propensity to Consume

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The Marginal Propensity to Consume Modern macroeconomics attaches much importance to the response of consumption to changes in income. This concept is called the marginal propensity to consume, or MPC. The word “marginal” is used throughout economics to mean extra or additional. For example. “marginal cost” means the additional cost’ of producing an extra unit of output. “Propensity to consume” designates the […]

The Saving Function

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The Saving Function The saving function shows the relationship between the level of saving and income. This is shown graphically in Figure 22-4. Again we show, disposable income on the horizontal axis; but now saving, whether negative or positive in amount. is on the vertical axis. This saving function comes directly from Figure 22-3. It is the vertical distance between […]

The “Break Even” Point

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The “Break Even” Point To understand the figure, it is helpful to look at the 45° line drawn northeast from the origin. Because the vertical”and horizontal axes have exactly the same scale, the 45° line a very special property. At any point on the 45° line, the distance up from the horizontal axis (consumption) exactly equals the distance across from the […]