0 Up votes0 Down votes

11 views48 pagesMar 23, 2012

© Attribution Non-Commercial (BY-NC)

PPTX, PDF, TXT or read online from Scribd

Attribution Non-Commercial (BY-NC)

11 views

Attribution Non-Commercial (BY-NC)

- Chapter 23
- Public Economics
- Complete Macro
- Consumption Theory
- IMF Article on Oil Reserves
- Kat - Econs a2
- Governor Corbett Signs Budget, Cutting Spending, Without Tax Increases
- In
- Bangladesh Quarterly Economic Update - June 2012
- QEF_141
- FiscalPolicyStatement_2010_11
- ENG 125 Entire Course Introduction to Literature
- Economic Status
- inflstion
- report text
- Lessons from adopting a Medium Term Expenditure Framework (MTEF) Worldwide
- ewrf
- i Bd 20130718
- 1-s2.0-S1303070118300489-main (1).pdf
- 11 Mexico Ortiz

You are on page 1of 48

Capadosa

ECONOM1 Module 8

investment, government expenditure)

Consumption Function/Propensity to

to disposable income

slope of the consumption function

Indicates the percentage of each additional peso of disposable income that will be consumed Value is less than 1 Denoted as b (basic assumption: At zero disposable income, consumption takes place); for consumption function C = a + by Refers to change in the level of consumption that occurs as a consequence of a change in income (mpc= C/ Y)

MARGINAL PROPENSITY

Expesses the ration of the change in the level of savings ( S) that occurs as a consequence of a change in income ( Y) (mps = S/ Y)

(in billion pesos)

Income (Y) 100 200 300 Consumption (C) 125 200 275

400

500 600

350

425 500

(in billion pesos)

Income (Y) 100 200 300 400 500 Consumption (C) 125 200 275 350 425 Savings -25 0 25 50 75

600

500

100

(in billion pesos)

Income (Y) 100 200 300 400 500 Consumption (C) 125 200 275 350 425 Savings -25 0 25 50 75

600

500

100

(hypothetical data in million pesos)

Income (Y) Consumption (C) APC MPC

100

200 300 400 500 600

125

200 275 350 425 500 200/200 = 1 275/300=0.91 350/400=0.87 425/500=0.85 500/600=0.83 75/100=0.75 75/100=0.75 75/100=0.75 75/100=0.75 75/100=0.75

700 600

Y=C+S

C=C(y)

Income/Consumptio n

500

400 300

-100

100 200

Income

The fundamental psychological law... is that men are disposed, as a rule and on the average, to increase their consumption as their income increases, but not as much as the increase in their income.

(in billion pesos)

Income (Y) Consumption (C) Savings Investment C+I

-25 0 25 50 75

50 50 50 50 50

600

500

100

50

600

Income= Consumption+Investment

Y=C+S C+ I

200

100 50 0 0 50 100 150 200 250 300 350 400 450 500 550 600 Y

S

I

-50

Income

Investment

Refers to the decision made by firms to spend on

capital goods Determinants: economic factors, political conditions, peace and order situation, mood of investors Components: business fixed investment, residential construction, net change in business inventories

Multiplier

The number of times money has changed hands and

Yd = Disposable Income = Y Consumption Function: C = a + by (a= C at zero y or

the y-intercept; b=mpc or slope) mpc = C rise ------ = --------(slope of C function) Y run Savings Function: S = Y C mps = S rise ------ = --------(slope of S function) Y run mps + mpc = 1 S=Y-C

M or K =

Y=IxM Yg = G x K

or

IxK

A Demo Problem

Given: a = P50B

1.

b = 75%

C = a + by C=Y a + by = Y Y = a + by Y = 50 + 0.75 y (1 0.75) y = 50 Y = 50 ----- = 200, the pt where c = Y 0.25

The Consumption Function: C = 50 + 0.75 y 3. Getting the C & S under different Ys:

If Y = 100 C=? C = 50 + 0.75 y C = 50 + 0.75 (100) = 50 + 75

= 125 S=? S = Y-C = 100 125 = -25, dissavings

S=?

The Consumption Function: C = 50 + 0.75 y 3. Getting the C & S under different Ys:

If Y = 100 C=? C = 50 + 0.75 y C = 50 + 0.75 (100) = 50 + 75

= 125 S=? S = Y-C = 100 125 = -25, dissavings

= 350

S=? =Y-C = 400 - 350

= 50, + savings

The Consumption Function: C = 50 + 0.75 y 4. Computing for MPS:

If Y S

Mps =

S 50 25 ---- = -----------Y 400 - 300 = 25 ---100

If Y S

?

mps =

= 0.25

The Consumption Function: C = 50 + 0.75 y 4. Computing for MPS:

If Y S

Mps =

S 50 25 ---- = -----------Y 400 - 300 = 25 ---100

If Y S

S 75 50 ----- = ---------Y 500 400 = 25 ---100

mps =

= 0.25

= 0.25

Given: a = P50B

1.

(GNI = C + I) b = 75%

I = 50

Y = C + I, C = a + by Y = a + by + I Y = 50 + 0.75 y + 50 Y 0.75 y = 100 0.25 y = 100 Y = 400, the equilibrium income

1. Assume :

INCOME

50

CONSUMPTION

100

100

150 200 250 300 350 400 450 500

125

150 175 200 225 250 275 300 325

Assume :

INCOME

50

CONSUMPTION

100

100

150 200 250 300 350 400 450 500

125

150 175 200 225 250 275 300 325

2. Construct a new schedule with investment equal to 25:

INCOME

50 100 150 200

CONSUMPTI INVESTMEN ON T

100 125 150 175

C+I

250 300

350 400 450 500

200 225

250 275 300 325

2. Construct a new schedule with investment equal to 25:

INCOME

50

CONSUMPTI INVESTMEN ON T

100 25

C+I

125

100 150

200 250 300 350 400 450 500

125 150

175 200 225 250 275 300 325

25 25

25 25 25 25 25 25 25

150 175

200 225 250 275 300 325 350

2. Construct a new schedule with investment equal to 25:

INCOME

50 100 150 200 250 300 350 400 450 500

CONSUMPTION

100 125 150 175 200 225 250 275 300 325

INVESTMENT

25 25 25 25 25 25 25 25 25 25

C+I

125 150 175 200 225 250 275 300 325 350

What is the new equilibrium income? 200 CHECK: mpc = 0.5 , mps = 0.5, M = 1 / 0.5 = 2, Ye (new) = 150 + 50 = 200 Y = I x M = 25 x 2 = 50

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5?

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5? Y = addl I x K = 7.5 x 5 = 37.5, the additional Y

S (Y-C)

I = 10

I = 17.5

50

________

40

_______

10

_______

_______

_______

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5? Y = addl I x K = 7.5 x 5 = 37.5, the additional Y b. What would be total Y and C as a result of the foregoing?

S (Y-C)

I = 10

I = 17.5

50

_______

40

_______

10

_______

10

_______

(1)

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5? Y = addl I x K = 7.5 x 5 = 37.5, the additional Y b. What would be total Y and C as a result of the foregoing? Yt = Y 1 + Y = 50 + 37.5 = 87.5, total Y Y = C + I, C = Y I C = 87.5 17.5 = 70, total C

Y C I S (Y-C)

I = 10

I = 17.5

50

40

10

17.5

10

_______

(1)

87.5

70

M = 1 / mps = 1 / 0.2 = 5 a. What would be additional Income and Consumption if Investment were to increase by 7.5?

b. What would be total Y and C as a result of the foregoing? Yt = Y 1 + Y = 50 + 37.5 = 87.5, total Y Y = C + I, C = Y I C = 87.5 17.5 = 70, total C c. Compute Additional

Savings

S (Y-C)

I = 10

I = 17.5

50

40

10

17.5

10

_______

(1)

87.5

70

M = 1 / mps = 1 / 0.2 = 5 a. What would be additional Income and Consumption if Investment were to increase by 7.5?

b. What would be total Y and C as a result of the foregoing? Yt = Y 1 + Y = 50 + 37.5 = 87.5, total Y Y = C + I, C = Y I C = 87.5 17.5 = 70, total C c. Compute Additional

Y C I S (Y-C)

I = 10

I = 17.5

50

40

10

17.5

10

17.5 (5)

(1)

87.5

70

Given: a = P50B

1.

Solving for full employment equilibrium Y when there are values for C & I & G can be computed

Given: a = P50B

1.

Solving for full employment equilibrium Y when there are values for C & I & G can be computed Yg = G x K, M or K = 1 / 1-mpc = 1/ 1-0.75 = 1/0.25 = 4 100 = G x 4 G = 100 / 4 = 25, the Government Spending G Y = a + by + I + G = 50 + 0.75 y + 50 + 25 = 125 + 0.75 y (y 0.75y) = 125 Y = 500, the full employment equilibrium Ye

(GNI = C + I + G) Given: a = P50B, b = 75%, I = 50, Yg=100, G=25, Ye =500

Y,C, C+I, C+I+G

Compute and graph. Assume that C = 50 + yd

1. Compute for the break-even point . 2. How much is equilibrium income where Y = C + I

assuming investment is P50B? 3. How much is equilibrium income where Y = C = I + G if Government Spending is P20B? 4. Graph the aforementioned equations. 5. Compute the multiplier at each of the ff mpcs given an investment of P5B: Mpc Multiplier Yg (Income Generated) 50% 45%

Government Spending

As determined from the HH,

The level of income where there is no

Inflationary Gap

Occurs when aggregate demand C + I + G exceeds

equilibrium income Y

Deflationary Gap

Occurs when aggregate demand C + I + G fall short of equilibrium income Y

Y C I G C+I + G

100

125

50

25

200

200

300 400 500

200

275 350 425

50

50 50 50

25

25 25 25

275

350 425 500

Y=C+S C+ I

C+I+G

200

100 50 0 0 50 100 150 200 250 300 350 400 450 500 550 600 Y

S

I

-50

Income

Fiscal Policy

When the government uses its powers to influence

total spending either directly by changingits purchases of goods and services or indirectly by altering the disposable incomes of persons to changes in the level of taxation or transfer outlays

Fiscal Policies

1) Periods of deflation

Deficit budget (government spending more than

what it collects through taxes) or tax cuts

2) Periods of inflation

Surplus budget (government spending less than its budget) or balanced budget or tax increases

The Expenditure Impact

The Supply Impact

- Chapter 23Uploaded byVince Orebey Belarmino
- Public EconomicsUploaded byAzvember
- Complete MacroUploaded byNoemi Galleto Guevarra
- Consumption TheoryUploaded byAkash Aminul
- IMF Article on Oil ReservesUploaded byAngeloArayata
- Kat - Econs a2Uploaded byKathryn Teo
- Governor Corbett Signs Budget, Cutting Spending, Without Tax IncreasesUploaded byMike Schrimpf
- InUploaded byAyesha Sana
- Bangladesh Quarterly Economic Update - June 2012Uploaded byAsian Development Bank
- QEF_141Uploaded bywerner71
- FiscalPolicyStatement_2010_11Uploaded byKhurram Baig
- ENG 125 Entire Course Introduction to LiteratureUploaded byRamon Burleson
- Economic StatusUploaded bykay
- inflstionUploaded byBasit Sattar
- report textUploaded byrestiamelia01
- Lessons from adopting a Medium Term Expenditure Framework (MTEF) WorldwideUploaded byInternational Consortium on Governmental Financial Management
- ewrfUploaded byMurali Manohar Singh
- i Bd 20130718Uploaded bycphanhuy
- 1-s2.0-S1303070118300489-main (1).pdfUploaded byChika
- 11 Mexico OrtizUploaded byelizzalex
- 21(a) Fiscal System_0Uploaded byankitjss2007
- Protect Yourself and ProfitUploaded byMike Ademola
- Nawaz A. HakroUploaded byMani Malik
- Part e)Uploaded byQihuang Xie
- Public FinanceUploaded byThilaga Senthilmurugan
- Το 2ο Επικαιροποιημένο μνημόνιο - Ιούλιος 2013Uploaded byΗλίας Τσέρκης
- TARC4thReportUploaded byAmitesh Agarwal
- Full Document: Autumn StatementUploaded byedienews
- Assessing the G-20 Economic Stimulus Plans A Deeper Look.PDFUploaded byryuukai
- US Treasury: draftconcludingstatementUploaded byTreasury

- International Covenant on Civil and Political RightsUploaded byTlecoz Huitzil
- Rule 41 -43 Martin's ReportUploaded byMartin Tongco Fontanilla
- Sec 41-43 FontanillaUploaded byMartin Tongco Fontanilla
- Canons 14 22Uploaded byMartin Tongco Fontanilla
- Legislative DepartmentUploaded byMartin Tongco Fontanilla
- Commissioner of Customs v. HypermixUploaded byMartin Tongco Fontanilla
- Echevarria v. ParsonsUploaded byMartin Tongco Fontanilla
- Valdez v. AquizilanUploaded byMartin Tongco Fontanilla
- EthicsUploaded byMartin Tongco Fontanilla
- QC v. ABS-CBNUploaded byMartin Tongco Fontanilla
- Article-6Uploaded byMartin Tongco Fontanilla
- Alonzo v. IacUploaded byRavenFox
- The Significance of Logic For Law.docxUploaded byMartin Tongco Fontanilla
- The Significance of Logic for LawUploaded byMartin Tongco Fontanilla
- 205773674 CIR vs Estate of Benigno TodaUploaded byJohn Philip Guia
- Convention and Protocol Relating to the Status of RefugeesUploaded byUNHCR
- Human Rights; Finals ReviewerUploaded byMartin Tongco Fontanilla
- Estrellita JulianoUploaded byMartin Tongco Fontanilla
- Expropriation of LandUploaded byMartin Tongco Fontanilla
- Consti Syllabus Pt. 3 DigestUploaded byMartin Tongco Fontanilla
- Requirements for the BarUploaded byMartin Tongco Fontanilla
- Authorized by Law – LegalUploaded byMartin Tongco Fontanilla
- NMSMI v Military SHrineUploaded byMartin Tongco Fontanilla
- Berces vs. GuingonaUploaded byMartin Tongco Fontanilla
- 02 IPC OverviewUploaded byMartin Tongco Fontanilla
- Rustan Ang Pascua vs. CA and Irish SagudUploaded byMartin Tongco Fontanilla
- Manaement - Managers and RolesUploaded byMartin Tongco Fontanilla
- Digested Case of Rustan Ang vs. CAUploaded byMartin Tongco Fontanilla
- Intro to Business Ethics Part 2Uploaded byMartin Tongco Fontanilla

- Monetary Policy (Assignment)Uploaded byWaleed Aamir
- Week09-10_Unemployment and InflationUploaded bySafa
- 9708_s06_qp_3Uploaded byicicle_sky
- STAGFLATION.docxUploaded byFuhad Ahmed
- Midterml Review Sheet (2)Uploaded byandy_jean_2
- Kerala PSCUploaded byarulprasad
- Great Myths of the Great DepressionUploaded byEducators of Liberty
- AP ECON MACROECONOMICSUploaded byKesharaSS
- Australia finance with Global Star Capital and Rich CocovichUploaded byGlobal Star Capital
- Macroeconomics 5th Canadian Edition Test BankUploaded byStephanie.Henry1
- trends2007AnnualUploaded byImon Khandakar
- Chapter 1- Introduction to MacroeconomicsUploaded byĐốc Tờ Bombay
- MSFL - Inflation Aug'11Uploaded byHimanshu Kuriyal
- 10 Practical Tools for a Resilient Local EconomyUploaded byJoanne Poyourow
- Coincheckup.com - Coin Scoring FormulaUploaded byronaldo.zani
- Study on Overtime vs ProductivityUploaded byjctroskie
- Project Scenarios HubPlus Sept8 2011Uploaded bystlbeacon
- Managerial Economics Question BankUploaded byM.Satyendra kumar
- NufUploaded byMinToo KaaLita
- Too Many Girls - MGTOWUploaded byAhsan Habib
- http2.docxUploaded byPieterjan van der Leur
- How Hitler Defied the BankersUploaded byResearchingPub
- Gdp calculationUploaded bydpu2717
- 1DBU2FOAUploaded byKe Wei
- Economics for Engineering Stude - Singh SeemaUploaded bySunnyChoudhary
- Monetary PreziUploaded byHüsən Pirmuradov
- 2013 PJC Prelim H2 Paper 1 Suggested AnsUploaded byMarcus Tong
- Jim Rickards the Big Drop Book p29Uploaded byJorge Pleite Guerra
- Prediction of Tech Bubble Collapse Mark ThorntonUploaded byParallaxster
- CB2402 Week 6.docxUploaded byRoyChung

## Much more than documents.

Discover everything Scribd has to offer, including books and audiobooks from major publishers.

Cancel anytime.