SUMMARY makro 19th samuelson.docx - SUMMARY 1. Disposable...

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

The preview shows page 1 - 2 out of 3 pages.
SUMMARY1. Disposable income is an important determinant of consumption and saving. The consumption function is the schedule relating total consumption to total disposable income. Because each dollar of disposable income is either saved or consumed, the savingfunction is the other side or mirror image of the consumption function. 2. Recall the major features of consumption and saving functions: a. The consumption (or saving) function relates the level of consumption (or saving) to the level of disposable income. b. The marginal propensity to consume ( MPC ) is the amount of extra consumption generated by an extra dollar of disposable income. c. The marginal propensity to save ( MPS ) is the extra saving generated by an extra dollar of disposable income. d. Graphically, the MPC and the MPS are the slopes of the consumption and saving schedules, respectively. e. MPS 1 MPC. 3. Adding together individual consumption functions gives us the national consumption function. In simplest form, it shows total consumption expenditures as a function of disposable income. Other variables, such as permanent income or long-term income trends as well as wealth, also have a signifi cant impact on consumption patterns. 4. The personal saving rate has declined sharply in the last three decades. To explain

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 3 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Fall
Professor
NoProfessor

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture