Log in
HomeTextbook Notes300,000CA170,000

ECN 204 Chapter Notes - Chapter 10: Real Interest Rate, Demand Curve, Fiscal Multiplier

18 views2 pages
School
Ryerson University
Department
Economics
Course
ECN 204
Professor
Natalia B

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Both consumption and saving rise when di increases, both fall when decrease. Saving schedule - s = di - c. Average propensity to consume (apc) - percentage of total income that is consumed. Average propensity to save (aps) - the percentage of income that is saved. Marginal propensity to consume (mpc) - fraction of any change in income consumed. Marginal propensity to save (mps) - fraction of any change in income saved. Neither mpc or mps can be greater than 1. Wealth - when events occur that build existing wealth, households tend to increase spending and reduce saving. Borrowing - when households take out a loan, they usually spend more than their di, consumption sched. Lower consumption occurs in future when debt must be repaid. Expectations - thoughts on future prices and incomes will affect spending and saving in the present. Real interest rates - when rates fall, households will borrow more, consume more and have less to save.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

ECN 204 Lecture Notes - Lecture 5: Technological Change, Fiscal Multiplier, Aggregate Demand
limeporcupine729
ECN 204 Chapter 10: Chapter 10 Basic Macroeconomic Relationships
limeseal665
ECN 204 Lecture Notes - Real Interest Rate, Household Debt, Demand Curve
limecockroach746

Related Questions

(Answer the following questions based on the given data.)

**Please show work/formulas**

Consumption and Savings Schedule

Complete the following schedule (savings, APC, APS, MPC, & MPS):

DI C S APC APS MPC MPS
240 244
260 260
280 276
300 292
320 308
340 324
Key: DI = Disposable Income, C=Consumption, S=Saving, APC = Average Propensity to Consume, APS=Average Propensity to Save
MPC=Marginal Propensity to Consume, MPS=Marginal Propensity to Save
2. What are the 2 main tools the government can use with fiscal policy?
3. What is the goal of expansionary fiscal policy and how is it achieved?
4. What is the current level of total public debt for the United States, and what percent is foreign-owned?

The following table is a consumption schedule. Assume taxes and transfer payments are zero and that all saving is personal saving.

(GDP = DI)

C

S

APC

APS

$1,500

$1,540

$_____

1.027

–0.027

$1,600

$1,620

_____

1.013

–0.013

$1,700

$1,700

_____

_____

_____

$1,800

$1,780

_____

0.989

0.011

$1,900

$1,860

_____

0.979

0.021

$2,000

$1,940

_____

_____

_____

$2,100

$2,020

_____

0.962

0.038

$2,200

$2,100

_____

_____

_____

Compute saving at each of the eight levels of disposable income and the missing average propensities to consume and to save.

1. The break-even level of disposable income is $________.

2. As disposable income rises, the marginal propensity to consume remains constant. Between each two GDPs the MPC can be found by dividing $________ by $________, and is equal to _______.

3. The marginal propensity to save also remains constant when the GDP rises. Between each two GDPs the MPS is equal to $________ divided by $________, or to _______.

Specific assignment: Mark each statement either True or False. If a statement is false, explain (very briefly) why it is false.

Keynes hypothesized that consumption is positively related to income. True

The marginal propensity to consume, MPC, is measured as changes in consumption over changes in income. True

The MPC is merely the percent of one’s income that is spent to purchase goods and services. True

The MPC is the slope of the consumption function.

If the MPC is .8, then it may be concluded that the MPS must be .2.

If a person’s income is $10,000 and that person is spending $7,500 on consumption, then it may be concluded that that person has a marginal propensity to save of .25.

The MPC and the MPS must sum to one, meaning that 1 – MPC = MPS

Given a linear (straight-line) consumption function, the MPC must be a constant.

At the point graphically at which the consumption function intersects the 45-degree reference line, the MPC must be equal to 1.

If the consumption function lies above the 45-degree reference line, then there must be negative saving in the economy.

Autonomous consumption is that level of consumption spending that is independent of the level of income.

A change in the level of income will shift the consumption function either upward or downward.

A change in the level of consumer wealth will shift the consumption function either upward or downward.

If the MPC has a positive value, then the MPS must have a negative value.

Saving is defined simply as disposable income minus consumption.

If the consumption function has a slope of 4/5, then the saving function must have a slope of .2.

Any factor that would shift the consumption function upward would shift the saving function upward also.

The average propensity to consume (APC), like the MPC, is simply the slope of the basic, Keynesian consumption function.

Given a typical shaped consumption function, as the level of income rises, the APC rises as well.

If a consumption function graphically starts at a point above the origin (i.e., has a positive vertical axis intercept), then the saving function must begin below the origin.

A dramatic rise in household inflationary expectations could be expected to shift the consumption function downward and the saving function upward.