Podcast
Questions and Answers
If disposable income rises from $15,000 to $18,000 and savings increase by $750, what is the marginal propensity to save (MPS)?
If disposable income rises from $15,000 to $18,000 and savings increase by $750, what is the marginal propensity to save (MPS)?
If the marginal propensity to consume (MPC) is 0.7, what is the marginal propensity to save (MPS)?
If the marginal propensity to consume (MPC) is 0.7, what is the marginal propensity to save (MPS)?
Which of the following represents the correct formula for Marginal Propensity to Save (MPS)?
Which of the following represents the correct formula for Marginal Propensity to Save (MPS)?
According to Keynes what are the two broad classifications of factors that influence the propensity to consume?
According to Keynes what are the two broad classifications of factors that influence the propensity to consume?
Signup and view all the answers
If disposable income increases from $20,000 to $25,000 and savings increase by $1,000, what is the MPS?
If disposable income increases from $20,000 to $25,000 and savings increase by $1,000, what is the MPS?
Signup and view all the answers
If an individual's disposable income increases and they increase their savings, what is likely to happen to their average propensity to save?
If an individual's disposable income increases and they increase their savings, what is likely to happen to their average propensity to save?
Signup and view all the answers
If the sum of MPC and MPS is $x$ what is the value of $x$?
If the sum of MPC and MPS is $x$ what is the value of $x$?
Signup and view all the answers
If disposable income is $1000 and consumption is $700, what is the saving?
If disposable income is $1000 and consumption is $700, what is the saving?
Signup and view all the answers
If disposable income increases by $2,000 and saving increases by $400 what is the marginal propensity to save?
If disposable income increases by $2,000 and saving increases by $400 what is the marginal propensity to save?
Signup and view all the answers
Which of the following is the correct representation of the saving function, where 'a' is a constant, 'b' is the marginal propensity to consume, and Y is income?
Which of the following is the correct representation of the saving function, where 'a' is a constant, 'b' is the marginal propensity to consume, and Y is income?
Signup and view all the answers
Given a consumption function of C = 200 + 0.75Y, what is the marginal propensity to save (MPS)?
Given a consumption function of C = 200 + 0.75Y, what is the marginal propensity to save (MPS)?
Signup and view all the answers
What is the average propensity to save (APS) if disposable income is $1000 and savings are $200?
What is the average propensity to save (APS) if disposable income is $1000 and savings are $200?
Signup and view all the answers
If the average propensity to consume (APC) is 0.8, what is the average propensity to save (APS)?
If the average propensity to consume (APC) is 0.8, what is the average propensity to save (APS)?
Signup and view all the answers
According to Keynesian theory, what happens to the average propensity to save (APS) as income increases?
According to Keynesian theory, what happens to the average propensity to save (APS) as income increases?
Signup and view all the answers
If consumption is greater than income, it represents?
If consumption is greater than income, it represents?
Signup and view all the answers
According to Keynes, which factor is the primary determinant of a community's consumption?
According to Keynes, which factor is the primary determinant of a community's consumption?
Signup and view all the answers
What does Keynes's 'psychological law of consumption' state regarding the marginal propensity to consume (MPC)?
What does Keynes's 'psychological law of consumption' state regarding the marginal propensity to consume (MPC)?
Signup and view all the answers
In the Keynesian consumption function, how does the average propensity to consume (APC) behave as income rises?
In the Keynesian consumption function, how does the average propensity to consume (APC) behave as income rises?
Signup and view all the answers
According to Keynes, what determines the stability of the consumption function in the short run?
According to Keynes, what determines the stability of the consumption function in the short run?
Signup and view all the answers
What does the Keynesian consumption function, represented as C = a + by, suggest?
What does the Keynesian consumption function, represented as C = a + by, suggest?
Signup and view all the answers
Which of the following is NOT a characteristic of Keynes's consumption function?
Which of the following is NOT a characteristic of Keynes's consumption function?
Signup and view all the answers
Keynes's multiplier theory is directly related to which property of the consumption function?
Keynes's multiplier theory is directly related to which property of the consumption function?
Signup and view all the answers
According to Keynes, how does his view on the determinants of consumption differ from classical economists?
According to Keynes, how does his view on the determinants of consumption differ from classical economists?
Signup and view all the answers
Flashcards
Saving
Saving
The portion of disposable income that is not spent on consumption.
Saving Function
Saving Function
The relationship between saving and income, showing how much is saved at different income levels.
Marginal Propensity to Save (MPS)
Marginal Propensity to Save (MPS)
The change in saving caused by a one-unit change in income.
Average Propensity to Save (APS)
Average Propensity to Save (APS)
Signup and view all the flashcards
Marginal Propensity to Consume (MPC)
Marginal Propensity to Consume (MPC)
Signup and view all the flashcards
MPC + MPS = 1
MPC + MPS = 1
Signup and view all the flashcards
Consumption Function
Consumption Function
Signup and view all the flashcards
Break-Even Point
Break-Even Point
Signup and view all the flashcards
Subjective Factors (Consumption)
Subjective Factors (Consumption)
Signup and view all the flashcards
Objective Factors (Consumption)
Objective Factors (Consumption)
Signup and view all the flashcards
Average Propensity to Consume (APC)
Average Propensity to Consume (APC)
Signup and view all the flashcards
Keynes's Consumption Function: Income Drives Consumption
Keynes's Consumption Function: Income Drives Consumption
Signup and view all the flashcards
Average Propensity to Consume (APC) Decreases with Income
Average Propensity to Consume (APC) Decreases with Income
Signup and view all the flashcards
Consumption Function: Stable in the Short Run
Consumption Function: Stable in the Short Run
Signup and view all the flashcards
Contrasting with Classical Economist's Focus
Contrasting with Classical Economist's Focus
Signup and view all the flashcards
Consumption (in Macroeconomics)
Consumption (in Macroeconomics)
Signup and view all the flashcards
Keynes's Psychological Law of Consumption
Keynes's Psychological Law of Consumption
Signup and view all the flashcards
Study Notes
Saving Function
- Saving is the portion of income not consumed.
- Disposable income is either consumed or saved.
- Mathematical representation: Yd = C + S, where Yd = disposable income, C = consumption, and S = saving.
- Saving is a function of income: S = f(Y).
- Keynesian consumption function: C = a + bY.
- Substituting the Keynesian consumption function into the saving equation: S = -a + (1-b)Y, where b = marginal propensity to consume (MPC) and (1-b) = marginal propensity to save (MPS).
- The sum of MPC and MPS equals one: (MPC + MPS = 1)
- A numerical example is given with C = 150 + 0.80Y, yielding S = 150 + 0.20Y, thus MPS = 0.20.
Average Propensity to Save (APS)
- APS is the proportion of disposable income that is saved.
- Calculation: APS = Savings/Disposable Income (S/Y).
- Like APC, APS changes as income increases.
- As income increases, APC falls, and APS rises.
- Mathematical relationship: APC + APS = 1.
Graphical Representation of Saving Curve
- The saving curve (SS) shows the difference between consumption (CC) and income (OZ) curves.
- Below OY (a certain income level), consumption exceeds income, resulting in dissaving.
- Beyond OY₁ (another income level), saving is positive.
- As income rises, the absolute amount of saving increases, and the average propensity to save also increases.
Marginal Propensity to Save (MPS)
- MPS represents the change in saving due to a change in disposable income.
- Calculation: MPS = ΔS/ΔY.
- The sum of marginal propensity to consume (MPC) and MPS equals one (MPC + MPS = 1).
- A numerical example illustrates how MPS is calculated from a change in disposable income leading to a change in saving.
Determinants of Propensity to Consume
- Crucial factors influencing the propensity to consume.
- Keynes's division of factors: subjective and objective factors.
- Objective factors include national income levels, while subjective ones involve individual psychological aspects and societal norms
- Absolute current income is a major factor.
- Consumption function is relatively stable in the short term. (not greatly influenced by external factors
Summary of Keynes' Consumption Function
- C = a + bY.
- National income significantly impacts consumption.
- Rate of interest is less influential compared to national income.
- Marginal propensity to consume (MPC) is between zero and one (0<MPC<1).
- Average propensity to consume (APC) falls as income increases, while average propensity to save (APS) rises.
- The stability of the consumption function is a key feature. It is largely unchanged in the short term.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your understanding of saving, disposable income, and the Keynesian consumption function in this economics quiz. Explore concepts such as Marginal Propensity to Save (MPS) and Average Propensity to Save (APS) along with their mathematical representations. Challenge yourself with numerical examples and graphical interpretations of saving behaviors.
