macro_3 - I Consumption(60 Minutes piece high joblessness in the home of the US Space flight A Most Important Determinant 1 2 3 4 5 6 7 8 disposable

macro_3 - I Consumption(60 Minutes piece high joblessness...

This preview shows page 1 - 2 out of 3 pages.

I.Consumption (60 Minutes piece- high joblessnessin the home of the US Space flight)A.Most Important Determinant1.disposable income2.consumption schedule3.average propensity to consume (APC) - consumption / disposable income (after tax income)4.average propensity to save (APS) - saving / disposable income (after tax income)5.APC + APS = 16.marginal propensity to consume (MPC) - additional consumption / additional disposable income7.marginal propensity to save (MPS) - additional saving / additional disposable income8.MPC + MPS = 1B.Saving1.disposable income - consumption2.saving schedule3.dissaving occurs when consumption exceeds disposable incomeC.Other Determinants1.Wealth (what your assets, investments, etc are worth)2.household debt3.consumer expectationsII.InvestmentA.Investment Demand Curve1.relationship between investment and the interest rateB.Determinants1.expected rate of return on the project2.real interest rateC.Investment Can Be Very UnstableIII.Multiplier- when money gets spent, it ripples through and gets spent multiple timesA.Definition1.initial spending changes lead to a much larger effect on the overall economy2.applies to all four G D P components (consumption, gross private domestic investment, government purchases, or net exports)3.applies to increases or decreases in spendingB.Formula (Macro 3.10 – Calculating the spending multiplier – ACDC)1.1 / MPS 2.1 / ( 1 - MPC )IV.Fiscal PolicyA.Definition1.actions Congress and the President (think they need to) take to influence the economyB.Employment Act of 19461.gave Congress and the President the authority to conduct fiscal policy2.created the Council of Economic AdvisorsC.Expansionary Fiscal Policy1.increase government spending2.decrease taxes (allow consumers to do the spending)3.bothD.Contractionary Fiscal Policy1.decrease government spending2.increase taxes (decrease consumer spending)3.bothE.Nondiscretionary Fiscal Policy (Built-In Stabilizers: Automatic)1.progressive income tax system (more you make, the more you get taxed)2.transfer payment system (less you make, or lose yourjob- welfare programs help with $)F.Problems / Criticisms / Complications1.slow 2.timing issues3.crowding out- makes money unavailable for use in theprivate sector (private investors/other countries)4.politicians find expansionary fiscal policy much easier to implement than contractionary fiscal policyG.Leading Economic Indicators1.length of the average work week, especially in the manufacturing sector2.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture