agreegate demand

agreegate demand - Behavior of Aggregate Demand...

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Click to edit Master subtitle style Behavior of Aggregate Demand Increase/Decrease Shift Right/Left Recessionary/Inflationary Gaps
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Major Questions to Address What are the components of aggregate demand? What determines the level of spending for each component? Will there be enough demand to maintain full employment?
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Four Components of Aggregate Demand Consumption ( C ) Investment ( I ) Government spending ( G ) Net exports ( X - IM )
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Click to edit Master subtitle style Consumption Big but Stable Two Components Autonomous Consumption Income-Dependent (Induced) Consumption
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Income and Consumption By definition, all disposable income is either consumed (spent ) or saved (not spent). Disposable income = Consumption + Saving Y D = C + S
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U.S. Consumption and Income DISPOSABLE INCOME (billions of dollars per year) $1 00 0 2 0 0 0 3 0 0 0 4 0 0 0 Actual consumer spending 6 0 0 0 5 0 0 0 4 0 0 0 3 0 0 0 2 0 0 0 1 0 0 0 0 5 0 0 0 6 0 0 0 7 0 0 0 4 5 ° $7 00 0 1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 CONSUMPTION (billions of dollars per year) C = YD
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The Marginal Propensity to Consume The marginal propensity to consume ( MPC ) is the fraction of each additional (marginal) dollar of disposable income spent on consumption. Obj10
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Marginal Propensity to Save The marginal propensity to save ( MPS ) is the fraction of each additional (marginal) dollar of disposable income not spent on consumption. MPS = 1 – MPC
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The Consumption Function The consumption function is a mathematical relationship that helps to predict consumer behavior. n consumptio dependent - income n consumptio Autonomous n consumptio Total + =
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The consumption function provides a precise basis for predicting how changes in income ( YD ) effect consumer spending ( C) . C = a + bY
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This note was uploaded on 10/27/2010 for the course ECON econ3150 taught by Professor Matilde during the Spring '10 term at Concordia AB.

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agreegate demand - Behavior of Aggregate Demand...

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