ECON 2301: Chapter 30 (Basic Macroeconomic Relationships)

According to the table, when disposable income is $470 billion, what is the savings?

$20 billion

The average propensity to consume and the average propensity to save together equal _____.

1 (one)

Economists use what term to mean "total" or "combined"?

Aggregate

_____ propensity to save equals saving divided by income.

Average

What does saving divided by income equal?

Average propensity to save

The _____ propensity to consume is the fraction or percentage of total income that is consumed.

average

The fraction of total income that is saved equals the _____ propensity to save.

average

The fraction or percentage of total income that is consumed is called the _____.

average propensity to consume

Total consumption divided by total disposable income equals _____.

average propensity to consume

The fraction of total income that is saved is called the _____.

average propensity to save

Which of the following is true of the relationship between consumption and disposable income? a) there is no relationship between them b) they are positively related c) they are negatively related

b) they are positively related

Average propensity to consume equals total _____ divided by disposable income.

consumption

Average propensity to consume equals total _____ divided by total disposable income.

consumption

The _____ schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.

consumption

investment demand curve

curve that shows the amounts of investment demanded by an economy at a series of real interest rates

The consumption schedule shows the various amounts that households plan to consume at each level of: a) consumption & savings b) nominal GDP c) investment d) disposable income

d) disposable income

When real interest rates _____, households tend to borrow more, consume more, and save less.

decrease

Since disposable income is either consumed or saved, the fraction of any disposable income consumed plus the fraction saved must be _____.

equal to 1

average propensity to save (APS)

fraction (or percentage) of disposable income that households save; saving divided by disposable income

average propensity to consume (APC)

fraction (or percentage) of disposable income that households spend on consumer goods; consumption divided by disposable income

marginal propensity to consume (MPC)

fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income

marginal propensity to save (MPS)

fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income

Consumption is positively related to disposable _____.

income

break-even income

level of disposable income at which households plan to consume (spend) all their income and to save none of it

In economic terms, _____ means "extra" or "a change in".

marginal

The ratio of a change in consumption to a change in the income that caused the consumption is called the _____.

marginal propensity to consume

A change in saving divided by a change in income is equal to the _____.

marginal propensity to save

multiplier

ratio of a change in equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; number by which a change in any such component must be multiplied to find the resulting change in equilibrium GDP

45 degree line

reference line in a two-dimensional graph that shows equality between the variable measured on the horizontal axis and the variable measured on the vertical axis. In the aggregate expenditures model, the line along which the value of output (measured horizontally) is equal to the value of aggregate expenditures (measured vertically).

According to the table, _____ is $30 billion when disposable income is $510 billion.

savings

paradox of thrift

seemingly self-contradictory buy possible true statement that increased saving may be both good and bad for the economy. It is always good in the long run when matched with increased investment spending, but may be bad in the short run if there is a recession because it reduces spending on goods and services.

consumption schedule

table of numbers showing the amounts households plan to spend for consumer goods and different levels of disposable income; also known as "consumption function"

saving schedule

table of numbers that shows the amounts households plan to save (plan not to spend for consumer goods), at different levels of disposable income; also known as "saving function"

wealth effect

tendency for people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets falls

To economists, the term "aggregate" means ____.

total; combined