Econ Chapter 6
Permanent income hypothesis
A person's consumption spending is related to his or her permanent income
Relative income hypothesis
As national income increases, consumption spending increases as well, always by the same amount. That is, as national income increases, MPC remains constant
Absolute income hypothesis
As national income increases, consumption spending increases, but by diminishing amounts. That is, as national income increases, the MPC decreases
Autonomous Consumption
Consumption spending that is independent of the level of income
Intended Investment
Investment spending that producers intend to undertake
Autonomous Investment
Investment that is independent of the level of income
Permanent income
Permanent income is the regular income a person expects to earn annually. It may differ by some unexpected gain or loss from the actual income earned
Saving
That part of national income not spent on consumption
Marginal Propensity to Save(MPS)
The change in saving induced by a change in income
Marginal propensity to consume(MPC)
The ratio of the change in consumption spending to a given change in income
Consumption Function
The relationship between consumption and income
Transitory Income
The unexpected gain or loss of income that a person experiences. It is the difference between a person's regular and actual income in any year
Life-cycle hypothesis
Typically, a person's MPC is relatively high during young adulthood, decreases during the middle-age years, and increases when the person is near or in retirement