What happens to Consumption and Savings when disposable income increases?
They Both Rise.
What happens to Consumption and Savings when disposable income Decreases?
They Both Fall.
When Disposable Income increases what happens to the APC and APS?
APC falls and the APS rises.
What is the average propensity to consume (APC)?
The fraction of any specific level of disposable income that is spent on consumer goods.
What is the average propensity to save (APS)?
The fraction of any specific level of disposable income that is saved.
What is the marginal propensity to consume (MPC)?
The fraction of a change in disposable income that is consumed and it is the slope of the consumption schedule.
What is the marginal propensity to save (MPS)?
The fraction of a change in disposable income that is saved and it is the slope of the saving schedule.
What can shift the consumption and saving schedules (as they relate to real GDP)?
Changes in consumer wealth, consumer expectations, interest rates, household debt, and taxes.
True or False? A specific investment will be undertaken if the expected rate of return, r, equals or exceeds the real interest rate, i?
What does the investment demand curve show?
The total monetary amounts that will be invested by an economy at various possible real interest rates.
What changes occur, causing the investment demand curve to shift?
(a) the costs of acquiring, operating, and maintaining capital goods, (b) business taxes, (c) technology, (d) the stock of capital goods on hand, and (e) business expectations.
What is the Multiplier?
The ratio of a change in the equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; the number by which a change in any such component must be multiplied to find the resulting change in the equilibrium GDP.
According to the Multiplier, an increase in initial spending...
Will create a multiple increase in GDP
According to the Multiplier, a decrease in initial spending...
Will create a multiple decrease in GDP.
How are the MPC and the Multiplier related?
How are the MPS and the Multiplier related?
What is the Multiplier Formula?
Multiplier = 1/MPS
The multiplier effect reveals that an initial change in spending can cause...
A larger change in domestic income and output.
What do the consumption and saving schedules show?
The various amounts that households intend to consume and save at the various income and output levels, assuming a fixed price level.
The average propensities to consume and save show...
The fractions of any total income that are consumed and saved; APC + APS = 1.
The marginal propensities to consume and save show...
The fractions of any change in total income that are consumed and saved; MPC + MPS = 1.
The instability of investment spending is contributed by...
The durability of capital goods, the irregular occurrence of major innovations, profit volatility, and the variability of expectations
Economists estimate that the actual multiplier effect in the U.S. economy is...
about 2, which is less than the multiplier in the text examples.