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Title: Consumption Sector Of The GDP - Basic Economic Lecture Notes
Description: This set of class notes tackle the first of the four sectors of GDP, the consumption sector. Topics covered in this include; consumption function, savings, Average Propensity to Consume (APC), Average Propensity To Save (APS), Marginal Propensity to Consume (MPC), Marginal Propensity to Consume (MPC), Marginal Propensity To Save (MPS), Autonomous & Induced Consumption, and Permanent Income Hypothesis. Definitions and equations for each of these topics are also provided in each section
Description: This set of class notes tackle the first of the four sectors of GDP, the consumption sector. Topics covered in this include; consumption function, savings, Average Propensity to Consume (APC), Average Propensity To Save (APS), Marginal Propensity to Consume (MPC), Marginal Propensity to Consume (MPC), Marginal Propensity To Save (MPS), Autonomous & Induced Consumption, and Permanent Income Hypothesis. Definitions and equations for each of these topics are also provided in each section
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Chapter 5: Household Consumption Sector Of The GDP Notes
Gross Domestic Product (GDP)
● It is a nation’s entire expenditures on all the final goods and services produced
during the specific year at the market price
● These are four main sectors of GDP:
1
...
Investment
3
...
Net Export
Consumption Sector (C)
-
-
The Largest sector out of the four sectors
● E,g Consumption accounts for 7 dollars for every 10 dollars on
final good and service
Americans spend virtually all their income even after taxes although
saving as slight increases since 2007
Consumers spend roughly 67
...
If DI increases, C also increases but by small amounts
2
...
Average Propensity to Consume (APC)
● The percentage of disposable income that is spent
● Equation for APC
𝐴𝑃𝐶 =
𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛
𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
● APC values and their meaning
1
...
If APC is greater than 1, consumption is more than
disposable income
3
...
Average Propensity To Save (APS)
● The percentage of disposable income that is saved
*Note: APC + APS = 1 (100% of Disposable Income)
● Equation of APS
𝐴𝑃𝑆 =
𝑠𝑎𝑣𝑖𝑛𝑔𝑠
𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
3
...
Marginal Propensity To Save (MPS)
● The percentage of increase in disposable income that’s
saved
● Equation of MPS
𝑀𝑃𝑆 = ( 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑣𝑖𝑛𝑔𝑠)/(𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐷𝐼)
* Note: MPC + MPS = 1 (100% of Disposable Income)
-
Graphing Consumption And Saving Functions
● Typical Consumption Function
● Typical Graph of Saving function Graph
-
Autonomous & Induced Consumption
● Autonomous Consumption (AC)
The level of consumption when the disposable income is zero
*Note, its called autonomous because it doesn’t change with the
levels of disposable income
● Induced Consumption(IC)
Equation
IC = C - AC
The part of consumption that does change due to the levels of
disposable income(DI)
I
...
As DI falls, so does the IC
-
Determining the Level of Consumption
1
...
Credit Availability
● Ability to borrow effects spending directly
3
...
Stocks of Durable Goods in the Hands of Consumer
● Market saturation leads to drops in consumption
5
...
g I drive a supercar caz I’m rich and successful
6
...
g
...
g
...
Consumer Expectation
● Buy stocks now if you think the price will rise
● Buy later or stop buying if you think the prices will fall like in
a recession
8
Title: Consumption Sector Of The GDP - Basic Economic Lecture Notes
Description: This set of class notes tackle the first of the four sectors of GDP, the consumption sector. Topics covered in this include; consumption function, savings, Average Propensity to Consume (APC), Average Propensity To Save (APS), Marginal Propensity to Consume (MPC), Marginal Propensity to Consume (MPC), Marginal Propensity To Save (MPS), Autonomous & Induced Consumption, and Permanent Income Hypothesis. Definitions and equations for each of these topics are also provided in each section
Description: This set of class notes tackle the first of the four sectors of GDP, the consumption sector. Topics covered in this include; consumption function, savings, Average Propensity to Consume (APC), Average Propensity To Save (APS), Marginal Propensity to Consume (MPC), Marginal Propensity to Consume (MPC), Marginal Propensity To Save (MPS), Autonomous & Induced Consumption, and Permanent Income Hypothesis. Definitions and equations for each of these topics are also provided in each section