ECON 1P92 Lecture Notes - Lecture 3: Consumption Function, Retained Earnings, Kraft Dinner

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maroonbadger901

7 Oct 2016

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ECON 1P92 Full Course Notes

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Total desired expenditure (agrregate expenditure, or ae): what would be spent, given. Y, on domestically produced goods and services (g&s). Desired net exports (nx = x im). Ae = c + i + g + x im. Do not change with changes in national income (y) Change with changes in national incomes (y) No foreign sector: ae = c + i. Relationship between c and variables that influence it. Determined by current real disposable income (y0) C = a + byd where a is autonomous consumption expenditure byd is induced consumption expenditure: example: c = 40 + 0. 8 yd, if yd is 100: c = 40 + 0. 8 (100) = . Graph of c goes here with the slope. Mpcyd (0. 8) is constant since slope of line is constant. Change in desired consumption divided by change in disposable income. Slope of the consumption function: mpcyd = change in c / change in yd.

Related Questions

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

The following is a model of a closed economy with nogovernment.
C = 44 + 0.6YD I = 12

where C = desired consumption expenditure (in billions of $), YD =disposable
income (in billions of $), and I = desired investment expenditure(in billions
of $).

a) What is autonomous C equal to?
b) What is induced C equal to if national income (Y) is 120?
c) What would happen to C if Y increased by 10?
d) What is the saving function equal to?
e) How can private saving (S) be negative? Explain.
f) What would happen to S if Y increased by 10?
g) At what level of Y is the average propensity to consume (APC)equal to 1?
h) How does the APC change as Y increases?
i) How does the average propensity to save (APS) change as Yincreases?
j) What is aggregate expenditure function equal to?
k) Is the economy in equilibrium when Y is 150? If no, then by howmuch are
the economyâs inventories changing?
l) What are the equilibrium levels of Y, C, S, and YD?
m) At equilibrium, what do the injections and the withdrawals inthis
economy equal?
n) Give two reasons why investment would change from I = 12 to I =18.
o) What are the new equilibrium levels of Y, C, S, and YD ifinvestment
changed from I = 12 to I = 18?
p) What is the size of the (simple) multiplier?
q) What is the change in Y in the 3rd round of the multipliereffect as a
result of the change in investment in part n?

harlequinseal728

1. Assume an economy with a Household Sector and a Business Sector. Household spending is given by C= 400 + 0.9Qd. Since there is no public sector, Qd = Q. Business sector spending is given as I = 1300. Determine the level of Autonomous Spending, the Spending Multiplier, GDP (Q), Consumption Spending (C) and Household Savings.

2. Now add a Foreign Sector where Exports are X = 1000 and Imports are Im = 500 + 0.1Q. Determine the level of Autonomous Spending, the Spending Multiplier, GDP (Q), Imports, Net Exports, Consumption Spending (C) and Household Savings.

3. Now add a public sector where Government Purchases are G = 2000, Transfer Payments are Tr = 2500 and Taxes are Tx = 500 + (1/3)Q. With the public sector Disposable Income is Qd = Q - Tx + Tr. Determine the level of Autonomous Spending, the Spending Multiplier, GDP (Q), Imports, Net Exports, Taxes, Disposable Income, Consumption Spending (C), Household Savings and the Deficit.

Please explain what each equation represents in the answer.

sangriamammoth898

ECON 1P92 Lecture Notes - Lecture 3: Consumption Function, Retained Earnings, Kraft Dinner

ECON 1P92 Full Course Notes

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