PPT-The Multiplier and the Consumption Function

Module 16 Spending In 2009 the US Congress passed the American Recovery and Reinvestment Act a 787 billion program to spark job growth and combat the recession Why did economists think a stimulus package would help the economy. 2Z1 Multiplier Core 2Y1 2X1 V-IV-IV-I A OutHigh Gain Output Amplifier What is consumption function?. Consumption function shows what expenditure consumers will wish to make on consumer’s goods and services at each possible level of income. Determinants of consumption function. T. he . number of times a rise in GDP exceeds the rise in injections that caused it. .. Eg. . if £10M increase in net injections results in £10.4 increase in GDP then the multiplier is 1.4 . The Multiplier. Autonomous versus induced expenditure. The consumption function. The theory of investment. Government purchase function. The net export function. Autonomous versus induced Expenditure. Autonomous expenditure. It expresses the relationship between total consumption expenditure and national income. C= f(Y). Keynes uses the term propensity to consume for consumption function.. Kurihara. . says, “ . Consumption represents the amount of consumption expenditure at a given level of income whereas the propensity to consume C/Y is a schedule of consumption expenditure at various levels of income.”. What is the nature of the multiplier and the meaning of aggregate consumption function?. How do both lead to changes in consumer spending?. How does expected future income and aggregate wealth affect consumer spending?. Shane Murphy. www.lancaster.ac.uk/postgrad/murphys4/econ15. s.murphy5@lancaster.ac.uk. Today’s Outline. Week 18 worksheet – Capital Markets:. We’ll try to do some questions on the board today.. Aggregate Expenditures. The total amount spent on final goods and services. . AE consists of (C) consumption + (. Ig. ) Gross Investment. . AE = C + . Ig. Equilibrium GDP. The level at which the total quantity of goods produced equals the total quantity purchased. . 27. McGraw-Hill/Irwin. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.. Economics 11/1/16 . http://mrmilewski.com. OBJECTIVE. : Examine the concepts of Consumption and spending. . This web quiz may appear as two pages on tablets and laptops.. I recommend that you view it as one page by clicking on the open book icon at the bottom of the page.. 10a – The Spending Multiplier. Function (CF). Greater part of Chapter 8 . & . 9 of the General Theory are devoted to factors which . underlie CF and determined . its form i.e. slope and position of the . curve. . One section . Objectives: . Define the term consumption, saving and . investment. . Explain the absolute income hypothesis, recognising the relationship between consumption and saving.. Define the term marginal / average propensity to consume (and save). . C= f(Y). Keynes uses the term propensity to consume for consumption function.. Kurihara. . says, “ . Consumption represents the amount of consumption expenditure at a given level of income whereas the propensity to consume C/Y is a schedule of consumption expenditure at various levels of income.”. “ President Obama announces a second stimulus package that will inject. $50B in additional funds for the Stimulus and Recovery Act.”. Consumption & Savings. MPC, MPS & Multiplier Analysis:.