ECON 162 Final: Fall16Econ162FinalReview

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Binghamton University
ECON 162
Kenny Christianson

Consumption and saving function consumption spending in US: represents about 23 of nations GDP Consumption function: demandside model shows relationship between consumption spending and disposable income can be represented as an equation, graph, or table as disposable income increases, consumption increases C= consumption spending 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 T= taxes Yd= disposable income, where Yd = YT Consumption function= C= C0+bYd Straightline, C0= vertical intercept, b=slope of consumption function Components of Consumption Spending: 1. C0=amount of consumption spending is independent of income, amount of consumption spending when disposable income = 0 2. Spending that increases with disposable incomebYd a. 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 Cchange of Yd, 0 < b <1
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