ajaz_204_2009_lecture_3 - University of Toronto Department...

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Unformatted text preview: University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 3 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) Today On Economic Models Consumption Set Convex Combination Convex Set Consumer Preferences Complete, transitive, monotonic Felicity Plots Indifference Curves Ajaz Hussain. Department of Economics. University of Toronto (St. George) 2 Models Ajaz Hussain. Department of Economics. University of Toronto (St. George) 3 Assumptions Model Testable Implications Relax Assumptions and Refine Model Test Model (ECO 220) Example: Keynes on Consumption In the General Theory of Employment, Interest and Money Keynes said: .. define .. propensity to consume as the functional relationship f between Y , a given level of income and C the expenditure on consumption out of that level of income, so that C = f ( Y ) .. that men are disposed, as a rule and on average, to increase their consumption as their income increases, but not by as much as the increase in their income .. it is obvious that a higher absolute level of income will tend as a rule to widen the gap between income and consumption .. These reasons will lead, as a rule, to a greater proportion of income being saved as real income increases Ajaz Hussain. Department of Economics. University of Toronto (St. George) 4 Keynesian Model .. that men are disposed, as a rule and on average, to increase their consumption as their income increases, but not by as much as the increase in their income .. it is obvious that a higher absolute level of income will tend as a rule to widen the gap between income and consumption .. These reasons will lead, as a rule, to athe gap between income and consumption ....
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This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto- Toronto.

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ajaz_204_2009_lecture_3 - University of Toronto Department...

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