econ2010 exam 3 cheat sheet2

econ2010 exam 3 cheat sheet2 - 1 CONSUMPTION AND SAVING a...

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1.) CONSUMPTION AND SAVING: a.) MPC = change in C / change in Y D , where: MPC = the marginal propensity to consume. YD = disposable income. b.) MPS = change in S / change in Y D , where: MPS = the marginal propensity to save S = saving by households 2.) CONSUMPTION AND SAVING FUNCTIONS: a.) Consumption Function: C = a + bY D , where: a = autonomous consumption, b = the marginal propensity to consume. NOTE: Autonomous consumption is the level of consumption that is influenced by determinants other than disposable income; e.g., expectations and wealth. b.) Saving Function: S = (1-b)Y D – a [Note that (1-b) is the marginal propensity to save.] 3.) LEAKAGES AND INJECTIONS: a.) Injections = I + G + X b.) Desired injections = Des. I + G + X c.) Leakages = S + T + GBS + M, where: T = all taxes - all transfers, GBS = Gross Business Saving = depreciation + retained earnings. d.) Undesired change in inventories = leakages - desired injections. 4.) THE AGGREGATE EXPENDITURE FUNCTION: The Aggregate Expenditure (AE) function is: AE = A + b(1-f)Y, where: A = autonomous desired spending A = a + Des. I + G + X – M Recall that: f = the fraction of income paid in tax. NOTE: b(1-f) = the marginal propensity to consume out of total income (Y). 5.) RECESSIONARY GAPS:

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econ2010 exam 3 cheat sheet2 - 1 CONSUMPTION AND SAVING a...

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