Consumption and Saving: The Basic Analytic Framework

Consumption and Saving: The Basic Analytic Framework -...

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Econ 1110, Spring 2008, Professor Te 1 Lecture #6 Consumption and Saving: Applications of the Basic Analytic Framework
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Econ 1110, Spring 2008, Professor Te 2 Excess Sensitivity and Borrowing Constraints Sensitivity of Consumption to Income Marginal Propensity to Consume: Excess Sensitivity of Consumption to Income Actual MPC is higher than predicted by model Borrowing Constraints Contribute to excess sensitivity of consumption to income Y C MPC =
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Econ 1110, Spring 2008, Professor Te 3 Consumption/Saving Over the Life Cycle (An Example) Income 10 60 20 No Borrowing Constraint Consumption Saving Borrowing Constraint Consumption Saving 30 30 30 -20 30 -10 10 40 40 0 20 -20 (N.B.: r = 0)
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Econ 1110, Spring 2008, Professor Te 4 Consumption/Saving Over the Life Cycle (An Example) Income 16 60 20 No Borrowing Constraint Consumption Saving Borrowing Constraint Consumption Saving 32 32 32 -16 28 -12 16 40 40 0 20 -20 (N.B.: r = 0)
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Econ 1110, Spring 2008, Professor Te 5 Marginal Propensity to Consume
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Consumption and Saving: The Basic Analytic Framework -...

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