Study Guides (256,201)
CA (124,592)
Ryerson (8,674)
ECN (368)
ECN 204 (104)

Chapter 8 - Basic Macroeconomic relationships (with important formulas)

4 Pages
374 Views

Department
Economics
Course Code
ECN 204
Professor
Thomas Barbiero

This preview shows page 1. Sign up to view the full 4 pages of the document.
Chapter 8 Basic Macroeconomic Relationships
8.1 The Income-Consumption & Income-Saving Relationships
The consumption schedule
oReflects the direct consumption-disposable income relationship
oHigher income means higher consumption
The saving schedule
oS = DI C
oHigher income means higher saving
Non-income determinants of consumption and saving
Wealth: dollar amount of all household debt minus its liabilities
Wealth effect: a downward shift of the saving schedule and upward shift of the
consumption schedule due to higher asset wealth
Borrowing: when households borrow, they increase consumption
Expectations: expectations of future prices and income effect current spending and
saving
Real interest rates: when real interest rates (those adjusted for inflation) fall,
households tend to borrow more, consume more, and save less (and vice versa)
More on consumption and saving schedules
Switch to Real GDP: generally the macro models focus on Real GDP
Changes along schedules: movement along the curve are caused by changed in DI or
real GDP
Schedule shifts: changes in wealth, borrowing, expectations, and real interest rates
will shift the entire consumption schedule as well as the saving schedule (in opposite
directions)
Taxation: shift the consumption and saving schedule in the same direction. Taxes
are paid partly at the expense of consumption and partly at the expense of saving.
Thus, an increase in taxes will reduce both C and S
Stability: both C and S schedules are relatively stable, unless altered by a major tax
change. Both C and S schedules are influenced by long-term considerations
8.2 The interest rate-investment
Expected rate of return r
The real interest rate
oI = nominal rate rate of inflation
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
Chapter 8 – Basic Macroeconomic Relationships 8.1 The Income-Consumption & Income-Saving Relationships The consumption schedule o Reflects the direct consumption-disposable income relationship o Higher income means higher consumption The saving schedule o S = DI – C o Higher income means higher saving Non-income determinants of consumption and saving Wealth: dollar amount of all household debt minus its liabilities Wealth effect: a downward shift of the saving schedule and upward shift of the consumption schedule due to higher asset wealth Borrowing: when households borrow, they increase consumption Expectations: expectations of future prices and income effect current spending and saving Real interest rates: when real interest rates (those adjusted for inflation) fall, households tend to borrow more, consume more, and save less (and vice versa) More on consumption and saving schedules Switch to Real GDP: generally the macro models focus on Real GDP Changes along schedules: movement along the curve are caused by changed in DI or real GDP Schedule shifts: changes in wealth, borrowing, expectations, and real interest rates will shift the entire consumption schedule as well as the saving schedule (in opposite directions) Taxation: shift the consumption and saving schedule in the same direction. Taxes are paid partly at the expense of consumption and partly at the expense of saving. Thus, an increase in taxes will reduce both C and S Stability: both C and S schedules are relatively stable, unless altered by a major tax change. Both C and S schedules are influenced by long-term considerations 8.2 The interest rate-investment Expected rate of return r The real interest rate o I = nominal rate – rate of inflation www.notesolution.com o Crucial in making investment decisions 8.3 Shifts in the investment-demand curve Acquisition, maintenance, and operating costs: i.e. electricity costs decrease, investment demand curve shifts right Business taxes: after tax returns are crucial to investment decisions. If business taxes increase, curve shifts to the left. If they decrease, curve shifts to the right Technological change: new products, improvements to existing products and new machinery and production processes stimulate investment Stock of capital goods on hand: if the economy is under stocked, curve moves to the right P
More Less
Unlock Document


Only page 1 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit