Austin Leishman - Macroeconomics Relationships.docx - ECON 2020—Macroeconomics Name Austin Leishman Assignment Designation Macroeconomics

# Austin Leishman - Macroeconomics Relationships.docx - ECON...

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ECON 2020—Macroeconomics Name: Austin Leishman Assignment Designation: Macroeconomics Relationships 1. Precisely how do the APC and the MPC differ? Why must the sum of the MPC and the MPS equal 1? What are the basic determinants of the consumption and saving schedules? a. The APC is an average whereby total spending on consumption is compared to total income. MPC refers to changes in spending and income at the margin. MPC is the fraction of the change in income spent; therefore, the fraction not spent must be saved and this is the MPS. Since the denominator of this equation is the total change in income, the sum of the MPC and MPS is always one. The basic determinants of the consumption and saving

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Unformatted text preview: schedules are the levels of income and output. Once the schedules are set, the determinants of where the schedules are located would be the amount of household wealth, expectations of future income, the real interest rate, prices and product availability; the relative size of consumer debt, and the amount of taxation. 2. What is the multiplier effect? What relationship does the MPC bear to the size of the multiplier? The MPS? a. The multiplier effect is the magnified increase in equilibrium GDP that occurs when any component of aggregate expenditures changes. The greater MPC, and smaller the MPS, the greater the multiplier. Page 1 ECON 2020—Macroeconomics Page 2...
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• Spring '11
• ReedGooch

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