Summary08 - CHAPTER 8 SUMMARY: 1. When you spend money at...

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CHAPTER 8 SUMMARY: 1. When you spend money at the mall, is that good for the economy? Does the amount of your income that you spend cause an increase in someone else's income? Consumption spending is the main component of real GDP. If consumption spending falls, real GDP will decline. Because real GDP is also the income for the economy, consumption spending by one group means income for another group within the economy. 2. Do the spending habits of households like yours translate to the spending patterns for the economy as a whole? Households increase their consumption spending when income increases. The same holds true for aggregate consumption in the economy. The relationship between income and consumption can be described with a consumption function for a household and an aggregate consumption function for a whole economy. 3. How much of their extra income do people spend? How can we figure this out? The fraction of extra income that households spend is the marginal propensity to consume. It can
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This note was uploaded on 09/14/2009 for the course ECON 304L taught by Professor Staff during the Fall '07 term at University of Texas at Austin.

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Summary08 - CHAPTER 8 SUMMARY: 1. When you spend money at...

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