xid-679802_1 - Basic Macroeconomic Relationships Jos R....

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Basic Macroeconomic Relationships José R. Rodríguez Solís
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EXPENDITURE PLANS AND REAL GDP The Consumption Function Consumption function is the relationship between consumption expenditure and disposable income, other things remaining the same. Disposable income is aggregate income (GDP) minus net taxes. Net taxes are taxes paid to the government minus transfer payments received from the government.
Background image of page 2
EXPENDITURE PLANS AND REAL GDP Figure shows the consumption function. As disposable income increases, consumption expenditure increases induced consumption. Each dot corresponds to a column of the table. Point A shows that autonomous consumption is $1.5 trillion.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EXPENDITURE PLANS AND REAL GDP Along the 45° line, consumption expenditure equals disposable income. 1. When the consumption function is above the 45° line, saving is negative (dissaving occurs).
Background image of page 4
EXPENDITURE PLANS AND REAL GDP 3. At the point where the consumption function intersects the 45° line, all disposable income is consumed and saving is zero. 2. When the consumption function is below the 45° line, saving is positive.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Marginal Propensity to Consume Marginal propensity to consume ( MPC ) is the fraction of a change in disposable income that is spent on consumption. MPC
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 20

xid-679802_1 - Basic Macroeconomic Relationships Jos R....

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online