BasicMacroeconomicRelationships.pptVIP

Basic Macroeconomic Relationships Chapter 9 Average and Marginal Propensities to Consume and Save Average Propensities APC = C/DI APS = S/DI since DI = S + C APC + APS = 1 Marginal Propensities MPC = ?C/?DI MPS = ?S/?DI Since DI = S + C ?DI = ?S + ?C MPC + MPS = 1 The Consumption and Saving Functions Consumption and Saving Functions I Consumption function: C = CA + MPC(Y) Where CA (intercept) = “Autonomous Consumption” MPC (slope) = “Marginal Propensity to Consume” (also = 1 – MPS) Y = GDP or “Disposable Income” Consumption and Saving Functions II Saving function: S = S0 + MPS(Y) Where S0 (