CAS EC 102 Lecture Notes - Lecture 13: Consumption Function, Aggregate Demand, Credit Card Debt
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Y = c + i + g + nx. X = foreign spending on domestic goods and services (the value of exports) Total current income (gdp) after taxes are taken out and after transfer payments. Note that consumption depends on current disposable income, , not current. = y - t + tr, where t = total taxes; tr = transfer payments. Consumption function and the marginal propensity to consume (mpc) income, y. Consumption function: the relationship between consumption spending and disposable income. The slope of the consumption function: the amount by which consumption spending changes when disposable income changes. Mpc = (cid:3004) (cid:3028)(cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3030)(cid:3042)(cid:3041)(cid:3046)(cid:3048)(cid:3040)(cid:3043)(cid:3047)(cid:3042)(cid:3041) (cid:3004) (cid:3028)(cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3031)(cid:3046)(cid:3043)(cid:3042)(cid:3046)(cid:3028)(cid:3029)(cid:3039)(cid:3032) (cid:3041)(cid:3030)(cid:3042)(cid:3040)(cid:3032)= Current disposable income (= y - t + tr) Expected future disposable income (cid:4666) + (cid:4667) Example: if mpc = 0. 9, mps = 1 - 0. 9 = 0. 1 (cid:3005)(cid:3032)(cid:3451) (cid:3450) c(cid:3451) (cid:3005)(cid:3451) (cid:3450) c(cid:3451) R = real interest rate change in disposable income.