DOC PREVIEW
SU ECN 203 - consumption
Type Lecture Note
Pages 2

This preview shows page 1 out of 2 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ECN 203 1nd Edition Lecture 23Outline of Last Lecture II. Examples of ADIII. Aggregate SupplyOutline of Current Lecture IV. Consumption V. Sources of consumption spendinga. Consumption functionCurrent LectureLecture 3/20/1513.1 Consumption - The aggregate nominal amount spending consumers do. It makes about 65-70% of AD. - Sources of the Forces that Determine the Level of Co Permanent income: in the aggregate it is a function of long term expected income status. Everyone has a perception of their permanent income. The amount we need and have been able to count on to maintain our current lifestyle.  If we see our prospects improving we spend more.  If we are experiencing a hard time, we use accumulated wealth/savings to maintain our lifestyle.  If times become harder we adjust our perception of our permanent income. - Sources of Consumption Spending o The amount of current aggregate income in the economy determines the amount of production in the economy because the funds paid for that production becomes people’s incomes.  Current nominal aggregate income = GDP (P*Y)o Consumption Function: C = A + b (PY)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. C = aggregate nominal consumption PY is nominal GDP - Price level * Real GDP- PY = nominal aggregate income ‘b’ = marginal propensity to consume - The proportion of nominal aggregate income that is used for consumption - Consumer Confidence: if consumers see their prospects as brightening and they sense that the future is secure they are more comfortable spending their income. Therefore, ‘b’ increases because they feel confident to live a more satisfying lifestyle.  1-b is the portion used for savings o If PY = $100 bill and b = 0.8 for the nation, as a nation we’d spend $80 bill of our income on consumption and save $20 bill of our income.  ‘b’ is not a constant, it varies across nations. It changes with expectations about the future. So economists closely watch the Consumer Confidence Index. o Increasing consumer confidence helps the economy because when people are more confident they are more willing to spend on consumption  If C increases, then AD increase, which drives Y up, and decreases unemployment. o ‘A’ is autonomous consumption: it is independent of PY. It is spending out of wealth, often to shy away from difficult times, as many did in the Great


View Full Document

SU ECN 203 - consumption

Type: Lecture Note
Pages: 2
Download consumption
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view consumption and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view consumption 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?