Mps mpc the consumption function consumption schedule the expenditure schedule and the multiplier
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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 Expenditure Schedule and the Multiplier

  • 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 Expenditure Schedule and the Multiplier

  • 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 Expenditure Schedule and the Multiplier

  • 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
T Expenditure Schedule and the Multiplierhe 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 Expenditure Schedule and the Multiplier

  • 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 Expenditure Schedule and the Multiplier

  • 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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