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ECON100B_Section_0915-16

# ECON100B_Section_0915-16 - Economics 100B Discussion Notes...

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Unformatted text preview: Economics 100B Discussion Notes Review of Consumption, Saving, Investment Part I (Lecture 09/11/08 by Professor Steven Wood) Prepared by GSI Maylin Jue ( [email protected] ) Section Date: 09/15/08 to 09/16/08 Savings Desired Consumption(C d ) : the consumption amount desired by households Desired Savings (S d ): the level of national saving when consumption is at its desired level • S d = Y - C d – G • S positive when consumption < income • S negative when consumption > income • Tradeoff between current consumption and future consumption (more savings means more future consumption) Marginal Propensity to Consume (MPC) • MPC = ∆C / ∆ Y • MPC < 1 • Therefore, ∆C < ∆ Y • If Y increases by \$5, C will increase by let’s say \$3 (point being C increases by less than \$5). There’s \$2 leftover which goes into Savings. When Y increases, both C and S increase. Factors that Shift the Savings Curve Right • A rise in current output (↑Y) • A fall in expected future output (↓Y e ) • A fall in wealth (↓W) • A fall in government purchases (↓G) • A rise in taxes (assuming Ricardian equivalence does not hold) (↑T) • *An increase in interest rates increases savings but does not shift savings because...
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ECON100B_Section_0915-16 - Economics 100B Discussion Notes...

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