Term
When consumers
just aren't buying enough
of everything produced. |
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Definition
The most plausible consequence in this scenario
is a cutback in overall production
(a decrease in real GDP)
and an increase
in the economy's unemployment. |
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Term
Producers are not producing
as much as people want to consume. |
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Definition
The most plausible consequence
of this scenario
is greater overall production
(an increase in real GDP)
and a decrease in the economy's unemployment. |
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Term
The level of a person's income is the ... |
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Definition
... single most important factor
influencing a person's consumption spending. |
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Term
Define the
Consumption Function |
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Definition
The relationship between
consumption and income.
It means that consumption
is a function of income,
or in other words,
that the level of consumption
depends on the level of income. |
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Term
How is the Consumption Function written? |
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Definition
C = f(Y)
C = Consumption
Y = income
f = |
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Term
|
Definition
More spending (consumption)
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Term
John Maynard Keynes wrote what book?
And when was it published? |
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Definition
The General Theory of
Employment, Interest and Money;
in 1936 |
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Term
Keynesia economics is based upon what book?
Written by who? |
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Definition
The General Theory of Employment, Interest and Money
Written by John Maynard Keynes |
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Term
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Definition
advanced the hypothesis that although people who earn high incomes spend more on consumption than people who earn less, they are less inclined to spend as much out of a given increase in income than are those earning less. |
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Term
| absolute income hypothesis |
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Definition
| as national incomes increases, consumption, spending increases, buy by diminishing amounts. That is, as national income increases, the MPC decreases. |
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Term
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Definition
Marginal Propensity to Consume |
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Term
What does the MPC measure? |
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Definition
The marginal propensity to consume measures
the slope of the consumption function. It is the ration of the change in consumption to the change in income. |
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Term
How do you determine the
change in consumption? |
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Definition
subtract the most recent consumption $$
from the prior (most previous) $$
to arrive at the difference. |
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Term
What three steps to follow
in order to arrive at
MPC? |
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Definition
1. Subtract current consumption $2200
from previous consumption $1400 = $800
2. Subtract current income $2000
from previous income $1000 = $1000
3. Divide change in consumption by
change in income $800/$1000
4. MPC = answer MPC = .80
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Term
Change in Consumption Induced
by a Change in Income |
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Definition
the Marginal Propensity to Consume (MPC) |
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