Flashcards
Macroeconomics Chapter 10
Cards in this deck (39)
- 1What DI, C and S stand for?-Disposable tax income (after-tax income)
-Consumption
-Saving - 2What is the equation of DI?DI = C + S
- 3Savingsamount added during a particular time
- 4Saveamount by a particular time
- 5Dissavingwhen saving is negative
- 6What degree is the reference line?45 degree
- 7Consumption Schedulereflects the direct consumption-disposable income relationship suggested by the data
- 8Comsumption Schedule (Aggregate)Households increase their spending as their disposable income rises and spend larger portions of a small disposable income than large disposable income
- 9Saving ScheduleBecause saving equals disposable income less consumption (S=DI-C) we only subtract consumption from disposable income to find amount saved.
- 10Saving Schedule(Graph)Direct relationship between S and DI, BUT S is a smaller proportion of a small DI than of a large DI
- 11Where will we see Dissaving?It will occur relatively at low DIs
- 12Where can we see dissaving on the graph?Shown as the vertical distance of the consumption schedule above the 45 degree line; or the vertical distance of the saving schedule below the horizontal axis.
- 13What is break-even income?The income level at which households plan to consume their entire incomes (C=DI)
- 14Average Propensity to Consume (APC)APC= Consumption/Income
- 15Average Propensity to SaveAPS= Saving/Income
- 16As DI goes up...APS rises
APC falls - 17Because DI is either consumed or saved, the fraction of any DI consumed plus the fraction saved must exhaust that income.APC+APS=1
- 18Marginal Propensity to Consume (MPC) equationMPC = change in consumption/change in income
- 19Marginal Propensity to Save (MPS) equationMPS = change in saving/change in income
- 20The proportional or fraction of any change in income consumed is called?Marginal Propensity to Consume (MPC)
- 21What does "marginal" mean?"extra" or "a change in"
- 22The proportional or fraction of any change in income saved is called?Marginal Propensity to Save (MPS)
- 23The sum of MPS and MPC for any change in disposable income must always be what?It must always be 1
MPS+MPC=1 - 24Nonincome Determinants of Consumption and Saving-wealth
-expectation
-borrowing
-real interest rates
-taxations - 25Wealth~High wealth (good): --> pulls them apart [buy (consume) more, save less]
~Low wealth (bad): --> pulls them together [buy (consume) less, same more] - 26Expectations~High expectations (good):--> pulls them apart [buy (consume) more, save less]
~Low expectation (bad): pulls them together [buy (consume) less, same more] - 27Borrowing~Borrow more --> pulls them apart [buy (consume) more, save less]
~Borrow less --> pulls them together [buy (consume) less, same more] - 28Real Interest Rates~Low rates (good): pulls them apart [buy (consume) more, save less]
~High rates (bad): pulls them together [buy (consume) less, same more] - 29Taxation~Taxes go up --> goes down
~Taxes go down --> goes up
**shifts both lines in the same direction - 30C = f(DI)If C goes up; DI goes up
- 31S = f(DI)If S goes up; DI goes up
- 32Interest-Rate Investment Relationship-Expected rate of return
-The real interest rate
-Investment demand curve - 33Expected Rate of Return (equation)* No one can guarantee the rate but only expect (trial and error)
*Money In ---> Money out + Extra Money
*(A1-A0)/A0 x 100 - 34Example of Expected Rate of Return*1100 - 1000 ---> +100
(1100-1000)/1000 x 100 = 10%
*5100-5000 ---> +100
(5100-5000)/5000 x 100 = 2%
10% is riskier than 2% but it's up to you and what you want - 35The Real Interest Rate (equation)-Nominal interest rate - rate of inflation = real interest rate
* i - pie = r
-Nominal interest rate - price of item = real interest rate
* %In - %change in P = Change in Ir - 36Investment Demand Curve~If money becomes cheaper, the more we borrow
--change is opposite direction between interest rate and investments (inverse relationship)
* RP(rate of profit) = (TR-TC)/TC x 100 - 37Shifts of Investment Demand- acquisition, maintenance, and operating costs
- business taxes
- technological change
- stock of capital goods on hand
- planned inventory changes
-expections - 38Multiplier Effect (Ripple Effect)* Multiplier = Change in real GDP/Initial change in spending
* Changing in GDP = Multiplier x Initial change in spending - 39Fractions of an increase in income consumed (MPC) and saved (MPS) determine the cumulative respending effect of any initial change in spending (Multiplier)Multiplier = 1/1-MPC
Multiplier = 1/MPS
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- Flashcards on Macroeconomics Chapter 10, created by nkauyerlor on 13/04/2015.
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