Econ - Exam 2 Study Guide

Econ - Exam 2 Study Guide - E xam 2 Study Guide Chapter 9...

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Exam 2 Study Guide Chapter 9 – Aggregate Expenditure Consumption - Disposable Income – income actually available for consumption and saving o Disposable Income – Consumption = Savings o Consumption is dependent variable, disposable income is independent variable o Consumption is a function of income - Marginal Propensities to Consume and to Save o Fraction of additional income that is spent is called to Marginal Propensity to Consume o MPC = Change in Consumption/Change in Income o MPS = Change in Savings/Change in Income - NonIncome Determinants of Consumption o Net Wealth – value of all assets minus liabilities Stock Variable Change in net wealth shifts the consumption function o Price Level Increase in price level reduces the purchasing power of money holdings, causing households to consume less and save more at each income level. Shifts the consumption function o Interest Rate Higher interest rate, other things constant, shifts the consumption function downward. Conversely, a lower interest rate, other things constant, shifts the consumption function upward o Expectations A change in expectations about price levels or interest rates also
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This note was uploaded on 08/22/2011 for the course ECON 2006 taught by Professor Rdcothren during the Spring '08 term at Virginia Tech.

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Econ - Exam 2 Study Guide - E xam 2 Study Guide Chapter 9...

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