ECON 162 Final: Fall16Econ162FinalReview

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Consumption and saving function consumption spending in us: represents about (cid:884)/(cid:885) of nation"s gdp. Consumption function: demand-side model shows relationship between consumption spending and disposable income can be represented as an equation, graph, or table as disposable income increases, consumption increases. Y= gdp, measured as either output or income. C0= autonomous consumption spending, level of subsistence consumption spending when income= 0 b= marginal propensity to consume mpc. Straightline, c0= vertical intercept, b=slope of consumption function. Components of consumption spending: c0=amount of consumption spending is independent of income, amount of consumption spending when disposable income = 0, spending that increases with disposable income byd, when disposable income increases, consumption spending increases by b. Mpc= slope, needs to be <1 to reach equilibrium. + slopes upwards, increase in income cause increase in consumption spending when income increases by a dollar, some of dollar is spent or saved- spent = mpc b= mpc= change of c/change of yd, 0 < b <1.