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Lecture 56

ECON 1020 Lecture 56: Lecture 56

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ECON 1020
Ryan A.Compton

OS82 CHAPTER 8 Basic Macroeconomic Relationships The IncomeConsumption and IncomeSaving Relationships: Consumption and savings Primarily determines by disposable income (DI) Disposable income (DI): money you have left from income after paying taxes Consumption schedule (C): shows amounts households plan to spend for consumer goods at different levels of disposable income Also known as consumption function (algebraically) Higher disposable income = higher consumption (positive relationship) Saving schedule (S): shows amounts households plan to save at different levels of disposable income Savings = disposable income consumption o Dissaving can occur (consuming more than disposable income) o Higher disposable income = higher savings (positive relationship) Average and Marginal Propensities: Average propensities to consume (APC) = consumption income Average propensities to save (APS) = saving income APC + APS = 1 Marginal: if you get one more dollar of saving or consumption, how much will income change Marginal propensities to consume (MPC) = change in consumption change in income Marginal propensities to save (MPS) = change in saving change in income MPC + MPS = 1 TABLE 81: Consumption and savings schedules (in billions) and propensities to consume and save GDP = income = disposable income (because there are no taxes) Marginals are constant
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