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Unformatted text preview: Name: Bao Dang ID: 16-867- 4989 Consumer Spending Keeps Rising U.S. consumers are spending more since October 2010. The eighth straight month of increasing and the largest increase of 0.7% in February ease some worries about the economic recovery. Despite rising commodity prices and inflation, the increase in income pumps up consumer spending while the saving rate decreases to 5.8 %. The pickup in customer spending in this situation can be explained using economic principles. Increase in aggregate income will lead to an increase in consumption because aggregate consumption (c) is a function of aggregate income (y). The relationship between consumption and income is described by the function c = a + b*y. The slope b is the marginal propensity to consume (MPC), which is the amount of increasing in consumption when aggregate income increases by one dollar. Given an increase in income by 0.3% and an increase in consumption by 0.7%, the marginal propensity to consume (MPC) is equal to 2.33 (or 0.7%/0.3%). In order words, when income increases by $1.00, consumption (MPC) is equal to 2....
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This note was uploaded on 10/16/2011 for the course ECON 110 taught by Professor Vernon during the Fall '07 term at BYU.
- Fall '07