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ECON102 Lecture Notes - Lecture 7: Autonomous Consumption, Consumption Function, Xm Satellite Radio

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turquoisegnat833
15 Dec 2016
School
University of Waterloo
Department
Economics
Course
ECON102
Professor
Maryann Vaughan

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Document Summary

Y = c + i + g + x m. Sum of aggregate expenditure = real gdp = aggregate income. C and m are influenced by real gdp/aggregate expenditure: real gdp/aggregate income aggregate expenditure. Consumption expenditure mostly influenced by disposable income (yd) Yd = y t = aggregate income taxes. Yd is either spent on consumption (c) or saved (s) At point a, yd = 0: autonomous consumption = c in the short-run even if one has no income; independent of yd = c m. 45 line divides the space exactly in half c = yd. Induced consumption = an increase in planned consumption expenditure; varies with yd = i + g + x. Marginal propensity to consume (mpc) the fraction of a change in disposable income spent on consumption: mpc = Consumption = autonomous consumption +mpc yd. Marginal propensity to save (mps) the fraction of a change in disposable income that is saved: mps =

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Related Questions

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 economy’s 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?