ECON 205 Lecture (4.14.2008)

ECON 205 Lecture (4.14.2008) - ECON-205 Lecture 4-14-2008...

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ECON-205 Lecture 4-14-2008 John Keynes continued… Main thing: Marginal propensity to consume Y = disposable income (net income after taxes) Y = C + S (consumption + savings) C = f (Y) Consumption is function of income S = f (Y) Savings is function of income Marginal propensity to consume (MPC) Marginal propensity to save (MPS) Adding MPC and MPS = 1. MPC and MPS are each less than 1. Out of $1.00, $0.80 is being consumed, and $0.20 is being saved. This is for advanced countries. More spending by consumer if you have unexpected income (such as tax cuts or tax rebates). John Keynes said capitalism needs continuous spending. Time lag. It takes 3 months to about a year to see an effect. What influences you as a consumer? - Why do people save money? o Higher interest rates o To send kids to school o Precaution – building reserves for the future o To provide for the anticipated future o To enjoy savings in the future (such as taking vacations) o To feel rich o To hold financial assets
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This note was uploaded on 09/26/2009 for the course ECON 205 taught by Professor Kamrany during the Spring '07 term at USC.

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ECON 205 Lecture (4.14.2008) - ECON-205 Lecture 4-14-2008...

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