Create an account
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
a linear relationship showing how increases in disposable income cause increases in consumption
the amount of consumption that occurs no matter the level of disposable income
a linear relationship showing how increases in disposable income cause increases in saving
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
the inverse relationship between the real interest rates and the cumulative dollars invested
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
saving conducted by households and equal to the difference between disposable income and consumption
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
describes how a change in any component of aggregate expenditures creates a larger change in GDP
the magnitude of the spending multiplier effect is calculated as =(change in GDP)/(change in spending) = 1/MPS = 1/(1-MPC)
the magnitude of the effect that a change in taxes has on real GDP = (change in GDP)/(Change in taxes) = MPC * multiplier = MPC/MPS
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