Lecture 9 Comparative statics for saving

Lecture 9 Comparative statics for saving -...

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Unformatted text preview: !"#$%&' )*++ %&,&- ./#0122#/ 31*4/56 .**+ 78,98%&,& 7:&& ;< '1"4=/1 7: >#[email protected]#? *?B 2*C5?D ± >#@A*/*45C1 E4*45"2 ,8F Lecture 9 "#$ %&'()*+,-&'./01-'2 %#&-3$ Ō %&*+040,-1$ /,0,-3( ¡ Last time ± consumption saving choice ( Chapter 4.1 and 4.Appendix ) ¡ Today ± finish consumption saving choice ( Chapter 4.1 and 4.Appendix ) ¡ Next time ± fiscal policy and consumption ( Chapter 4.1 and 4.Appendix ) %&*+040,-1$ (,0,-3(5 6&7 8&$( ,#$ &+,-*09 3#&-3$ &: 3&'()*+,-&' 0'8 (01-'2 8$+$'8 &' +040*$,$4(; ¡ two kinds of changes in the budget set: size and slope ± FKDQJHV WKDW DIIHFW RQO\ WKH ³VL]H´ RI WKH EXGJHW VHW¡ EXW QRW LWV VORSH¡ DUH FKDQJHV LQ ¢ these are pure income effects ± changes that affect the slope are changes in r ¢ we expect an income and a substitution effect to result from this ¡ definition of saving vs. lending ± private saving is defined as ± net lending is the asset position of the household at the end of the current period , , , , f f f y n t y n t a y y p p pv t s y n t c y c ¡ ¡ ¡ net lending a y c ¢ ¡ !"#$%&' )*++ %&,&- ./#0122#/ 31*4/56 .**+ 78,98%&,& 7:&& ;< '1"4=/1 7: >#[email protected]#? *?B 2*C5?D ± >#@A*/*45C1 E4*45"2 %8F "#$ $::$3, &: 3#0'2$( -' -'3&*$ 0'8 7$09,# <=> ¡ increase in current income ± budget set is shifted out ± both increase because they are normal goods ± also increases two ways to see this ¡ consumption smoothing means that not all of the extra income will be consumed today. Some will be saved. ¡ Since future consumption increases, but future income does not, the source of the extra consumption is extra saving. and f c c ¡ ¡ pv t s c c f D2 C1 2 y a ¢ C2 y f 1 y a ¢ D1 1 c ¡ 1 f c ¡ 2 c ¡ 2 f c ¡ "#$ *042-'09 +4&+$'(-,? ,& 3&'()*$ <@A%> ¡ Definition ± If income increases by one unit, consumption increases, but by less than one unit. The fraction of additional income spent on additional current consumption is called the marginal prop e n s ity to c on s um e ( MPC) . With notation ± Consumption smoothing implies that ¡ We can also use the MPC to derive the effect of an income change on private saving and future consumption...
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Lecture 9 Comparative statics for saving -...

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