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24 terms

Chapter 13 Consumption, Saving, Investment, and the Multiplier

STUDY
PLAY
disposable income
the income a consumer has left over to spend or save once he has paid out his net taxes
consumption and saving schedules
tables that show the direct relationships between disposable income and consumption and saving
consumption function
a linear relationship showing how increases in disposable income cause increases in consumption
autonomous consumption
the amount of consumption that occurs no matter the level of disposable income
saving function
a linear relationship showing how increases in disposable income cause increases in saving
dissaving
another way of saying that saving is less than zero
autonomous saving
the amount of saving that occurs no matter the level of disposable income
marginal propensity to consume
the change in consumption caused by a change in disposable income, or the slope of the consumption function
marginal propensity to save
the change in saving caused by a change in disposable income or the slope of the saving function
determinants of consumption and savings
factors that shift the consumption and saving functions in the opposite direction are wealth, expectations, and the household debt.
expected real rate of return
the rate of real profit the firm anticipates receiving on investment expenditures
real rate of interest
the cost of borrowing to fund an investment
decision to invest
a firm invests in projects so long as r is greater than or equal to i
investment demand
the inverse relationship between the real interest rates and the cumulative dollars invested
autonomous investment
the level of investment determined by investment demand
market for loanable funds
the market for dollars that are available to be borrowed for investment projects
demand for loanable funds
the negative relationship between the real interest rate and the dollars invested by firms
private saving
saving conducted by households and equal to the difference between disposable income and consumption
public saving
saving conducted by government and equal to the difference between tax revenue collected and spending on goods and services
supply of loanable funds
the positive relationship between the dollars saved and the real interest rate
multiplier effect
describes how a change in any component of aggregate expenditures creates a larger change in GDP
spending multiplier
the magnitude of the spending multiplier effect is calculated as =(change in GDP)/(change in spending) = 1/MPS = 1/(1-MPC)
tax multiplier
the magnitude of the effect that a change in taxes has on real GDP = (change in GDP)/(Change in taxes) = MPC * multiplier = MPC/MPS
balanced-budget multiplier
when a change in government spending is offset by a change in lump-sum taxes, real GDP changes by the amount of the change in G; the balanced-budget multiplier is thus equal to one