ECO101H1 Lecture Notes - Consumption Function, Autonomous Consumption, Parsec

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Topic 17 j national income and the price level. Jan 31st j feb 7th: overview, simple model. Answer: where desired spending j called aggregate expenditure (ae) equals national income (output) Assume price level is fixed ( nominal gdp = real gdp) to simplify analysis: - households consumption (c) depends upon income (y) - savings (s) = income not consumed = y-c. Marginal-propensity-to-save (mps) = %s/%y mpc+mps=1. (for every dollar of the income is either saved or consumed;) - firms undertake investment (i) in anticipation of earning a profit; - will treat as fixed (i=25) in first example www. notesolution. com www. notesolution. com www. notesolution. com www. notesolution. com. the multiplier: concept: y = multiplier x autonomous expenditure, however, induced consumption is the key. Round #2 c = mpc x y = 0. 9 x 10 = 9 output/income = 9. Round #3 c = mpc x y = 0. 9 x 9 = 8. 1 output/income = 8. 1. Total output/income is the sum of the following geometric sequence:

Related Questions

Calculate the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). Fill in the blanks in the following table. Show that the MPC plus the MPS equals 1.

National Income & Real GDP	Consumption	Saving	MPC	MPS
$9,000	$8,000
$10,000	$8,600
$11,000	$9,200
$12,000	$9,800
$13,000	$10,400

blushoyster276

Suppose the marginal propensity to consume is 60% and the marginal propensity to save is 40%. Income is $2,000, taxes are $220, and government spending is $300. Find a numerical value for:

Consumption:
Investment:
Private saving:
National saving:
Government saving

Question 1

Which of the following describes the relationship between the change in inventories and aggregate expenditure?

A.	Aggregate expenditure equals the change in inventories minus GDP.
B.	The change in inventories equals GDP divided by aggregate expenditures.
C.	Aggregate expenditures equals GDP divided by the change in inventories.
D.	Aggregate expenditures equals GDP minus the change in inventories.
E.	The change in inventories equals GDP multiplied by aggregate expenditure.

1 points

Question 2

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion. Which of the following is true?

A.	Disposable income and consumption fall by $10 billion
B.	Disposable income and consumption rise by $10 billion
C.	Disposable income rises by $10 billion and consumption rises by $8 billion
D.	Disposable income falls by $10 billion and consumption falls by $8 billion
E.	Disposable income rises by $10 billion and consumption falls by $8 billion

1 points

Question 3

If aggregate expenditure at a particular level of income is less than output,

A.	output will increase
B.	output will decrease
C.	output will remain the same
D.	output will rise slightly and then level off
E.	we cannot determine what will happen to output

1 points

Question 4

The consumption function

A.	illustrates the relationship between real disposable income and real consumption spending
B.	illustrates the relationship between the price level and real consumption spending
C.	is the relationship between productivity and real consumption spending
D.	shows how real consumption increases when real disposable income decreases
E.	illustrates the relationship between real consumption spending and employment

1 points

Question 5

The focus of the short-run macro model is on the role of

A.	spending in explaining economic fluctuations
B.	labor in explaining economic fluctuations
C.	financial markets in explaining economic fluctuations
D.	output in explaining economic fluctuations
E.	resources in explaining economic fluctuations.

1 points

Question 6

If the output level is such that the aggregate expenditure line lies below the 45-degree line, which of the following is true?

A.	Aggregate expenditure is greater than output, so inventories will increase and output will be raised.
B.	Aggregate expenditure is greater than output, so inventories will decrease and output will be increased.
C.	Aggregate expenditure is less than output, so inventories will decrease and output will be raised.
D.	Aggregate expenditure is less than output, so inventories will increase and output will be lowered.
E.	Aggregate expenditure is greater than output, so inventories will increase and output will be lowered.

1 points

Question 7

If the marginal propensity to consume is 0.7, the expenditure multiplier is

A.	7.0
B.	0.7
C.	3.0
D.	3.3
E.	not determinable without additional information.

1 points

Question 8

Aggregate expenditure is the sum of

A.	all types of spending by households and firms
B.	spending and savings by households
C.	spending by households and governments on final goods and services
D.	spending by households, government, firms, and foreigners on final goods and services
E.	all spending and saving by households, firms, and governments

1 points

Question 9

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase?

A.	$10,000
B.	$500
C.	$50
D.	$5,000
E.	$9,524

1 points

Question 10

When real consumption expenditure is plotted against real disposable income the resulting relationship is

A.	very weak.
B.	virtually flat .
C.	positive and very close to linear.
D.	negative and very close to linear.

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ECO101H1 Lecture Notes - Consumption Function, Autonomous Consumption, Parsec

ECO101H1 Full Course Notes

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