ECON 104 11th Edition Lecture 11 Outline of Last Lecture I Business Cycle a The Trough II Keynes a Say s Law and Classical Economists b Keynes Assumptions Outline of Current Lecture I GDP C I G a Consumption C II Equations a Average Propensity to Consume APC b Marginal Propensity to Consume MPC c Marginal Propensity to Save MPS III Consumption Function IV Savings Function V Investment Decision VI Graphical Representations Current Lecture 1 GDP C I G Consumption C is impacted by price and income YD C S Disposable Income Consumption Savings 2 Equations Average Propensity to Consume APC i APC C YD Marginal Propensity to Consume MPC i MPC C YD Represents the symbol for Change which is normally a Triangle Marginal Propensity to Save MPS i MPC MPS 1 so 1 MPC MPS 3 Consumption Function C f YD or C f Y i Consumption is a function of disposable income MPC b i C b Y Autonomous Expenditure a The components of an economy s aggregate expenditure that are not impacted by that same economy s real level of income i C a b Y 4 Savings Function S a 1 b Y 5 Investment Decision 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 1 Expectation of future income 2 Interest Rate For the Investment Function Producers in the economy must decide how much income to spend on new investment 6 Graphical Representations A basic model of the Consumption Function a Dissaving Spending an amount of money greater than available income b Saving the amount left over when the cost of a person s consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time Another basic model of the Consumption Function a C Consumption Function b I Investment Function c AE Aggregate Expenditure
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