ECON 1102 Lecture Notes - Lecture 10: Real Interest Rate, Disposable And Discretionary Income, Marginal Cost

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5 Sep 2016

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Learning objectives: (cid:120) describe how changes in income affect consumption (and saving). (cid:120) list and explain factors other than income that can affect consumption. (cid:120) explain how changes in real interest rates affect investment. (cid:120) (cid:120) Identify and explain factors other than the real interest rate that can affect investment. Illustrate how changes in investment (or one of the components of total spending) increase or decrease real gdp by a multiple amount. Our goal is to build a model to explain the business cycle, unemployment, and inflation. We start by examining the relationships between: income and consumption (and therefore income and saving) the interest rate and investment (cid:120) (cid:120) (cid:120) changes in spending and changes in output. We have already defined consumption as all expenditures by households on goods and services. Personal saving is the personal income of households less personal taxes and personal consumption expenditures. Income less taxes is disposable income, so saving is disposable income minus consumption.

Related Questions

The average propensity to consume (APC) equals

the change in real disposable income divided by the change in consumption expenditures.

the change in consumption expenditures divided by the change in real disposable income.

real disposable income divided by consumption expenditures.

consumption expenditures divided by real disposable income.

The consumption function shows how much

households plan to consume per year at each level of real disposable income.

households plan to consume per year at each level of savings.

households plan to consume per year at each possible interest rate.

real disposable income people will earn at each income tax bracket.

Saving is

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and services while savings is the difference between real GDP and disposable income.

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

Thinking as an economist would, which is true of investment?

		Investment represents spending on capital goods.
		Investment is a stock concept.
		Investment is putting money into stocks and bonds.
		It is the portion of disposable income that is not used for consumption or saving.

An appreciation of the U.S. dollar ________ the price of U.S. imports, and ________ the price of U.S. exports.

		lowers, lowers
		increases, increases
		increases, lowers
		lowers, increases

QUESTION 33

Other things being equal, if input prices rise in a country, then there would be

		cost-push inflation.
		demand-pull inflation.
		cost-push deflation.
		more production and a lower price level.

mauvetortoise195

Between the end of 2007 and mid-2009, aggregate U.S. real consumption spending declined by about $175 billion. Over the 18-month period, this amounted to a decrease in inflation-adjusted consumption expenditures of nearly 2 percent. Discuss how changes in household disposable income, housing and stock wealth, and debt-generated movements along and shifts in the U.S. saving function. Explain these effects, assuming other things were equal.

turquoisecamel437

Explain how each of the following will affect the consumption and saving schedules (as they relate to GDP) or the investment schedule:
a. A large increase in the value of real estate, including private houses.

b. A decline in the real interest rate.

c. A sharp, sustained decline in stock prices.

d. An increase in the rate of population growth.

e. The development of a cheaper method of manufacturing computer chips.

f. A sizable increase in the retirement age for collecting Social Security benefits.

g. An increase in the Federal personal income tax.

byzantiumant212

ECON 1102 Lecture Notes - Lecture 10: Real Interest Rate, Disposable And Discretionary Income, Marginal Cost

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