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III. UNIT III

III. UNIT III. B. The Consumption Function. 1. Autonomous consumption. identification and determining. factors. 2. Induced consumption. identification and determining. factors. 3. Calculation of MPC and MPS. C. Determinants of Planned Investment. D. Composition of Aggregate Demand.

jamal-richard
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III. UNIT III

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  1. III. UNIT III B. The Consumption Function 1. Autonomous consumption... identification and determining factors 2. Induced consumption... identification and determining factors 3. Calculation of MPC and MPS C. Determinants of Planned Investment D. Composition of Aggregate Demand E. Identification of recessionary and Inflationary Gaps

  2. MARGINAL PROPENSITY TO CONSUME (MPC) INCREASE THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS USED FOR EXTRA CONSUMPTION IS USED FOR EXTRA CONSUMPTION EXPENDITURES EXPENDITURES IS RELECTED AS IS REFLECTED AS DECREASED CONSUMPTION EXPENDITURES. DECREASED CONSUMPTION EXPENDITURES.

  3. MARGINAL PROPENSITY TO CONSUME (MPC) INCREASE THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS USED FOR EXTRA CONSUMPTION IS USED FOR EXTRA CONSUMPTION EXPENDITURES EXPENDITURES IS RELECTED AS IS REFLECTED AS DECREASED CONSUMPTION EXPENDITURES. DECREASED CONSUMPTION EXPENDITURES. IN CONSUMPTION EXPENDITURES MPC = IN DISPOSABLE INCOME

  4. MARGINAL PROPENSITY TO CONSUME (MPC) INCREASE THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS USED FOR EXTRA CONSUMPTION IS USED FOR EXTRA CONSUMPTION EXPENDITURES EXPENDITURES IS RELECTED AS IS REFLECTED AS DECREASED CONSUMPTION EXPENDITURES. DECREASED CONSUMPTION EXPENDITURES. IN CONSUMPTION EXPENDITURES MPC = IN GDP

  5. MPC = .75 OR 75% OR 3/4

  6. MPC = .75 OR 75% OR 3/4 IF INCOME WERE TO RISE BY $100, INDUCED CONSUMPTION WOULD RISE BY THREE FOURTHS OF $100. (OR BY $75)

  7. MARGINAL PROPENSITY TO CONSUME (MPC) INCREASE THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS USED FOR EXTRA CONSUMPTION IS USED FOR EXTRA CONSUMPTION EXPENDITURES EXPENDITURES IS RELECTED AS IS REFLECTED AS DECREASED CONSUMPTION EXPENDITURES. DECREASED CONSUMPTION EXPENDITURES. IN CONSUMPTION EXPENDITURES MPC = IN GDP

  8. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 1650 1000 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  9. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 1650 750 1000 2400 750 2000 3150 3000 750 3900 4000 750 750 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  10. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 1000 1650 750 1000 2400 1000 750 2000 3150 1000 3000 750 3900 4000 750 1000 750 4650 1000 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  11. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 1000 1650 750 1000 2400 1000 750 2000 3150 1000 3000 750 3900 4000 750 1000 750 4650 1000 5000 5400 6000 IN C 6150 7000 MPC = 6900 8000 IN GDP 7650 9000 8400 10000 9150 11000 750 9900 12000 = 10650 13000 1000 14000 11400

  12. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 3 1000 1650 750 1000 4 2400 1000 750 2000 " 3150 1000 3000 750 " 3900 4000 750 1000 " 750 4650 1000 5000 " 5400 6000 IN C 6150 7000 MPC = 6900 8000 IN GDP 7650 9000 8400 10000 9150 11000 750 9900 12000 = 10650 13000 1000 14000 11400

  13. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 3 1000 1650 750 1000 4 2400 1000 750 2000 " 3150 1000 3000 750 " 3900 4000 750 1000 " 750 4650 1000 5000 " 5400 6000 IN C 6150 7000 MPC = 6900 8000 IN GDP 7650 9000 8400 10000 9150 11000 750 = 9900 12000 1000 10650 13000 ? 13001 14000 11400

  14. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 3 1000 1650 750 1000 4 2400 1000 750 2000 " 3150 1000 3000 750 " 3900 4000 750 1000 " 750 4650 1000 5000 " 5400 6000 IN C 6150 7000 MPC = 6900 8000 IN GDP 7650 9000 8400 10000 9150 11000 750 9900 = 12000 10650 1000 13000 $1 .75 ? 13001 14000 11400

  15. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 3 1000 1650 750 1000 4 2400 1000 750 2000 " 3150 1000 3000 750 " 3900 4000 750 1000 " 750 4650 1000 5000 " 5400 6000 IN C 6150 7000 MPC = 6900 8000 IN GDP 7650 9000 8400 10000 9150 11000 750 9900 = 12000 .75 10650 1000 13000 $1 13001 10650.75 14000 11400

  16. MARGINAL PROPENSITY TO SAVE (MPS) INCREASE (N) THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS SAVED IS USED FOR EXTRA CONSUMPTION IS REFLECTED AS DECREASED SAVING.

  17. MARGINAL PROPENSITY TO SAVE (MPS) INCREASE (N) THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS SAVED IS USED FOR EXTRA CONSUMPTION IS REFLECTED AS DECREASED SAVING. IN SAVING MPS = IN DISPOSABLE INCOME

  18. MARGINAL PROPENSITY TO SAVE (MPS) INCREASE (N) THE FRACTION OF A(N) DECREASE DECREASE IN INCOME WHICH IS SAVED IS USED FOR EXTRA CONSUMPTION IS REFLECTED AS DECREASED SAVING. IN SAVING IN GDP MPS =

  19. MPS OF .25 OR 25% OR 1/4

  20. MPS OF .25 OR 25% OR 1/4 IF ANNUAL INCOME WERE TO FALL BY $2000, ANNUAL SAVING WOULD FALL BY ONE FOURTH OF $2000. OR $500

  21. INCOME MPC C REAL GDP equals IN GDP IN C 900 0 3 1000 1650 750 1000 4 2400 1000 750 2000 " 3150 1000 3000 750 " 3900 4000 750 1000 " 750 4650 1000 5000 " 5400 6000 IN C 6150 7000 MPC = 6900 8000 IN GDP 7650 9000 8400 10000 9150 11000 750 9900 12000 = 10650 13000 1000 $1 .75 13001 10650.75 14000 11400

  22. MPC + MPS = 1 SO: 1 - MPC = MPS 1 - MPS = MPC ALWAYS!!!!!!!!!!!!!! 1 - .75 = .25

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