mps mpc the consumption function consumption schedule the expenditure schedule and the multiplier
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Tiffany Weir, Andrew B ernardo, Xijun Zhu

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MPS/MPC, The Consumption Function, Consumption Schedule, The Expenditure Schedule and the Multiplier. Tiffany Weir, Andrew B ernardo, Xijun Zhu. MPC/MPS. MPC (Marginal Propensity to Consume) Definition: Ratio of the change in C to the change in DI that produces the change in C

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mps mpc the consumption function consumption schedule the expenditure schedule and the multiplier

MPS/MPC, The Consumption Function, Consumption Schedule, The Expenditure Schedule and the Multiplier

Tiffany Weir, Andrew Bernardo, Xijun Zhu

mpc mps
MPC/MPS
  • MPC (Marginal Propensity to Consume)
    • Definition:
      • Ratio of the change in C to the change in DI that produces the change in C
      • MPC= change in C/change in DI
        • Tells us how much of every $1 in DI will go to C
        • Slope of CF
  • MPS (Marginal Propensity to Save)
    • Definition:
      • Fraction of each additional (marginal) dollar of DI not spent on C
      • MPS= 1-MPC
        • Tells us how much of every $1 in DI will go to Savings
consumption function
Consumption Function
  • Mathematical relationship indicating the rate of desired consumer spending at various levels of income
  • Illustrates induced (movement along) and autonomous (shifts) changes in C
movement along cf
Movement along CF
  • From point A to B
  • Increase in C caused by an increase in DI
    • Induced increase in C
    • Income-Dependent Consumption
  • Slope of CF = MPC
t he consumption function consumption schedule expenditure schedule are equal when
The Consumption Function, Consumption Schedule, Expenditure Schedule are equal when…
  • I, G, (X-IM) are constant, PL are constants , and C is the only variable component of AD
    • CF, Taxes are also fixed
oversimplified multiplier formula
Oversimplified Multiplier Formula
  • Oversimplified Mult.= 1/1-MPC

Slope’s effect on the Multiplier

  • When the MPC (Slope of the CF) is greater the Multiplier is greater
shifts of expenditure schedule
Shifts of Expenditure Schedule
  • Y-axis is Total Expenditures
    • Shifts up or down because of the change in Spending
  • X-axis is RGDP
    • Different value illustrates the change in EGDP
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