mpc(marinal propensity to consume) = 485-5/800-0 = 0.6
House holds buys durable goods(more than 2 years), non durable ( and semi durable goods
Determinants of consumption spending
change in income ==> change in induced spending(movement along)
Change in autonomous spending 1. Wealth effect - wealth is the sum of all your assets less than your liabilities. if for e.g stock market is doing well, ur wealth effect will go up ==> autonomous consumption to go up(even though no increase in income) 2. Changes in prices (real balance effect) - if p goes down => the value of savings to go up=> savings to go down => auto consm to go up 3.Change in the age of durable good owned by consumers - As age of durable goods gets older, even thogh you don't have income, auto consm will go up 4. Change in consumer expectation - Confidence goes down (loss of job or mke less income) auto consm will go up; if you think you will get a raise lthough you have not seen it auto consm will go up
(1)Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
Consumption spending (C) = autonomous spending + induced spending
C=5+0.6Y 5=autonomous spending, 0.6Y=induces spending(1)
mpc(marinal propensity to consume) = 485-5/800-0 = 0.6
House holds buys durable goods(more than 2 years), non durable ( and semi durable goods
Determinants of consumption spending
- change in income ==> change in induced spending(movement along)
Change in autonomous spending1. Wealth effect - wealth is the sum of all your assets less than your liabilities. if for e.g stock market is doing well, ur wealth effect will go up ==> autonomous consumption to go up(even though no increase in income)
2. Changes in prices (real balance effect) - if p goes down => the value of savings to go up=> savings to go down => auto consm to go up
3.Change in the age of durable good owned by consumers - As age of durable goods gets older, even thogh you don't have income, auto consm will go up
4. Change in consumer expectation - Confidence goes down (loss of job or mke less income) auto consm will go up; if you think you will get a raise lthough you have not seen it auto consm will go up
(1)Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)