Chapter 12 Consumption - Capital goods producer durables...

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Chapter 12 Consumption, Real Gross Domestic Profit, and The Multiplier - Some simplifying assumptions in a keynesian model o Definitions Real disposable income- real gross domestic product minus net taxes or after tax real income- the amount of consumption Consumption- spending on new goods and services out of a household’s current income. Consumption is positively related to real disposable income Saving- act of not consuming all your income; it occurs at a particular rate Savings- measured at a point in time the money you have previously saved. Your current savings are a result of past saving Consumption goods- goods bought by households to use up. They consume the goods Disposable income= Consumption and saving o Investment Investment- spending by businesses on things such as machinery, tools, buildings which can be used to produce goods and services. Spending by firms that allow them to produce goods and services
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Unformatted text preview: Capital goods- producer durables: nonconsumable goods that firms use to make other goods -Determinants of planned consumption and planned saving o Real saving and real consumption decisions depend primarily on a household’s present level of disposable income o Marginal Prosperity to consume and to save The ratio of change in consumption to the change in real disposable income The ratio of the change in savings to the change in real disposable income • Marginal versus average prosperities o Average represents total change o Marginal represents total change • Relationships o Apc+ Aps= 1 or 100% o Mpc + Mps= 1 or 100%-Det erminants of invest m e nt o The planned invest m ent function- d et er minants Rate of return on invest m ent Interest rates -Multiplier o The ratio of the chang e in the e quilibrium level of real gross do m estic product to t chang e in autono mous real expenditures...
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This note was uploaded on 05/17/2010 for the course BIO 111 taught by Professor Osikanlu during the Spring '09 term at Moraine Valley Community College.

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Chapter 12 Consumption - Capital goods producer durables...

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