Saving, Investment, and the Financial System N.Gregory Mankiw Principles of Economics Eighth Edition
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Course
ECO
Institution
Concordia University College Of Alberta (
)
Book
Principles of Economics
The Consumption Sector
and Saving Function
Consumption and Disposable
Income,
Average Propensity to Consume
(APC/The Percent of DI Spent),
APCs Greater than One,
Marginal Propensity
to Consume (MPC),
Autonomous Consumption
versus Induced Consumption,
Determinants of the Level of
Consu...
average propensity to consume apcthe percent of di spent
the determinants of saving
determinants of the level of consumption
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The Consumption Sector
,Consumption
Consumption is the nation’s expenditures
on all final goods and services produced
during the year at market prices
GDP=C+I+G+Xn
Americans spend over 95% of their
income after taxes
The total of everyone’s expenditures is
called consumption
Consumption is designated by the letter C
C is the largest sector of GDP
Now C is just over two-thirds of GDP
,Consumption (Continued)
The consumption function states
As income rises, consumption (C) rises,
but not as quickly
Therefore, consumption varies with
disposable income (DI)
DI increases . . . C increases but by a smaller
amount
DI decreases . . . C decreases but by a smaller
amount
, Consumption and Disposable
Income
Disposable Income Consumption
Change Total DI Change Total
in in Consum
Income Consum ption
ption
1,000 +1000
1,400 +800
2,000 +1000
2,200 +800
3,000 +1000
3,000 +800
4,000 +1000
3,800 +800
5,000 4,600
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