ECON 2450 Lecture 1: ECON2450 Notes (all lectures)
19 Jul 2016
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Review of goods and money market with xed prices. Since housing is part of investment, which is a ects mostly by interest rate. C0 is the subsistence level of consump6on, autonomous level of consump6on, does not depend on y and any other factor. Yd is disposable income, ayer-tax income. t: tax rate yd=(1-t)*y. Cy is the marginal propensity to consume out of disposable income. Consump6on will increase if yd increases by 1 unit. Cy is greater than 1 because we consume more when disposable income increases, normal good. Cy is less than 1 because we save some of the increased disposable income. C=c0+cy*(1-t)*y slope of the consump6on func6on is cy (1-t) No6ce: if there is a surge in house or stock price, then household wealth will go up. Similarly, if there is a crash in house or stock prices then c0 decreases. Depends primarily on interest rate and the expecta6ons of the rms about the future level of economy ac6vity.
