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y, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
C HAPTE R
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Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
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Income Consumption and Income Saving Relationships Personal Saving (S) Consumption (C) Disposable Income (DI) S = DI - C 45-Degree Line The Consumption Schedule The Saving Schedule Break-even Income
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Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
APS
Saving / Income
MPC
Change in Consumption Change in Income
MPS
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SAVING
Consumption schedule
MPC = Slope of C
o
DISSAVING
o
Saving
45
MPC + MPS = 1
Disposable Income
Saving schedule
MPS = Slope of S
S
SAVING
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o S
Disposable Income
DISSAVING
GLOBAL PERSPECTIVE
Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
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France
Statistical Abstract of the United States, 2002
Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
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Wealth Wealth Effects Expectations Real Interest Rates Household Debt Taxation
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C1 C0
o Saving
Disposable Income
S0 S1 In Saving o
Disposable Income
A Decrease
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C0 C2
o Saving
Disposable Income
S2 An Increase S0
In Saving
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o
Disposable Income
Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
Inverse relationship between Investment demand and the expected rate of return
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Graphically presented...
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Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
r,
ID
5 10 15 20 25 30 35 40
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Acquisition, Maintenance, and Operating Costs Business Taxes Technological Change Stock of Capital Goods on Hand Expectations
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GLOBAL PERSPECTIVE
Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
20%
10%
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0%
South Korea Japan Mexico United France Germany Canada Sweden United States Kingdom Source: World Bank
INSTABILITY OF INVESTMENT
Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
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Multiplier
Change in GDP
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= Multiplier x
For Example
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(2) (3) Change in Change in (1) Saving Change in Consumption Income (MPC = .75) (MPS = .25)
Fourth Round
Fifth Round
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.39
1.19
3.56
Total
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$20.00
$15.00
$ 5.00
or 1 - MPC MPS
initial change in spending
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= Multiplier x
Multiplier
10
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.5
45-degree line consumption schedule saving schedule break-even income average propensity to consume (APC) average propensity to save (APS) marginal propensity to consume (MPC) marginal propensity to save (MPS) wealth effect expected rate of return investment demand curve multiplier
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BACK END
Income Consumption and Income Saving Relationships Consumption and Saving Nonincome Determinants of Consumption and Saving Terminology, Shifts, and Stability Investment Shifts in Investment Demand Investment Demand and Schedule Instability of Investment Multiplier Key Terms
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The Aggregate Expenditures Model
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Chapter 10
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