11 views

Uploaded by Martin Tongco Fontanilla

- Introduction to Economics
- arthakranti
- M.com. - I - Eco. of Global Trade & Finance
- ExeSum
- Morocco Report
- Analysis of Municipality Ternate
- Econ Paper 9
- Cassette 2013
- arthakranti
- Business Economics
- Government_Transparency_Guide1.pdf
- Index From Taxation and Debt
- demand forecasting.pptx
- Deficit Reduction Lessons From Around the World
- Mixed Economy
- 2017 07 17 Testimony FundingPublicSchools CFP VanceGinn
- ITF Country Risk
- Inidan Economic Reforms by M.ahluwalia
- The General Theory (Keynes)
- Global Aging 2010 - An Irreversible Truth - Standard and Poor's

You are on page 1of 48

Capadosa

ECONOM1 Module 8

investment, government expenditure)

Consumption Function/Propensity to

to disposable income

slope of the consumption function

Indicates the percentage of each additional peso of disposable income that will be consumed Value is less than 1 Denoted as b (basic assumption: At zero disposable income, consumption takes place); for consumption function C = a + by Refers to change in the level of consumption that occurs as a consequence of a change in income (mpc= C/ Y)

MARGINAL PROPENSITY

Expesses the ration of the change in the level of savings ( S) that occurs as a consequence of a change in income ( Y) (mps = S/ Y)

(in billion pesos)

Income (Y) 100 200 300 Consumption (C) 125 200 275

400

500 600

350

425 500

(in billion pesos)

Income (Y) 100 200 300 400 500 Consumption (C) 125 200 275 350 425 Savings -25 0 25 50 75

600

500

100

(in billion pesos)

Income (Y) 100 200 300 400 500 Consumption (C) 125 200 275 350 425 Savings -25 0 25 50 75

600

500

100

(hypothetical data in million pesos)

Income (Y) Consumption (C) APC MPC

100

200 300 400 500 600

125

200 275 350 425 500 200/200 = 1 275/300=0.91 350/400=0.87 425/500=0.85 500/600=0.83 75/100=0.75 75/100=0.75 75/100=0.75 75/100=0.75 75/100=0.75

700 600

Y=C+S

C=C(y)

Income/Consumptio n

500

400 300

-100

100 200

Income

The fundamental psychological law... is that men are disposed, as a rule and on the average, to increase their consumption as their income increases, but not as much as the increase in their income.

(in billion pesos)

Income (Y) Consumption (C) Savings Investment C+I

-25 0 25 50 75

50 50 50 50 50

600

500

100

50

600

Income= Consumption+Investment

Y=C+S C+ I

200

100 50 0 0 50 100 150 200 250 300 350 400 450 500 550 600 Y

S

I

-50

Income

Investment

Refers to the decision made by firms to spend on

capital goods Determinants: economic factors, political conditions, peace and order situation, mood of investors Components: business fixed investment, residential construction, net change in business inventories

Multiplier

The number of times money has changed hands and

Yd = Disposable Income = Y Consumption Function: C = a + by (a= C at zero y or

the y-intercept; b=mpc or slope) mpc = C rise ------ = --------(slope of C function) Y run Savings Function: S = Y C mps = S rise ------ = --------(slope of S function) Y run mps + mpc = 1 S=Y-C

M or K =

Y=IxM Yg = G x K

or

IxK

A Demo Problem

Given: a = P50B

1.

b = 75%

C = a + by C=Y a + by = Y Y = a + by Y = 50 + 0.75 y (1 0.75) y = 50 Y = 50 ----- = 200, the pt where c = Y 0.25

The Consumption Function: C = 50 + 0.75 y 3. Getting the C & S under different Ys:

If Y = 100 C=? C = 50 + 0.75 y C = 50 + 0.75 (100) = 50 + 75

= 125 S=? S = Y-C = 100 125 = -25, dissavings

S=?

The Consumption Function: C = 50 + 0.75 y 3. Getting the C & S under different Ys:

If Y = 100 C=? C = 50 + 0.75 y C = 50 + 0.75 (100) = 50 + 75

= 125 S=? S = Y-C = 100 125 = -25, dissavings

= 350

S=? =Y-C = 400 - 350

= 50, + savings

The Consumption Function: C = 50 + 0.75 y 4. Computing for MPS:

If Y S

Mps =

S 50 25 ---- = -----------Y 400 - 300 = 25 ---100

If Y S

?

mps =

= 0.25

The Consumption Function: C = 50 + 0.75 y 4. Computing for MPS:

If Y S

Mps =

S 50 25 ---- = -----------Y 400 - 300 = 25 ---100

If Y S

S 75 50 ----- = ---------Y 500 400 = 25 ---100

mps =

= 0.25

= 0.25

Given: a = P50B

1.

(GNI = C + I) b = 75%

I = 50

Y = C + I, C = a + by Y = a + by + I Y = 50 + 0.75 y + 50 Y 0.75 y = 100 0.25 y = 100 Y = 400, the equilibrium income

1. Assume :

INCOME

50

CONSUMPTION

100

100

150 200 250 300 350 400 450 500

125

150 175 200 225 250 275 300 325

Assume :

INCOME

50

CONSUMPTION

100

100

150 200 250 300 350 400 450 500

125

150 175 200 225 250 275 300 325

2. Construct a new schedule with investment equal to 25:

INCOME

50 100 150 200

CONSUMPTI INVESTMEN ON T

100 125 150 175

C+I

250 300

350 400 450 500

200 225

250 275 300 325

2. Construct a new schedule with investment equal to 25:

INCOME

50

CONSUMPTI INVESTMEN ON T

100 25

C+I

125

100 150

200 250 300 350 400 450 500

125 150

175 200 225 250 275 300 325

25 25

25 25 25 25 25 25 25

150 175

200 225 250 275 300 325 350

2. Construct a new schedule with investment equal to 25:

INCOME

50 100 150 200 250 300 350 400 450 500

CONSUMPTION

100 125 150 175 200 225 250 275 300 325

INVESTMENT

25 25 25 25 25 25 25 25 25 25

C+I

125 150 175 200 225 250 275 300 325 350

What is the new equilibrium income? 200 CHECK: mpc = 0.5 , mps = 0.5, M = 1 / 0.5 = 2, Ye (new) = 150 + 50 = 200 Y = I x M = 25 x 2 = 50

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5?

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5? Y = addl I x K = 7.5 x 5 = 37.5, the additional Y

S (Y-C)

I = 10

I = 17.5

50

________

40

_______

10

_______

_______

_______

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5? Y = addl I x K = 7.5 x 5 = 37.5, the additional Y b. What would be total Y and C as a result of the foregoing?

S (Y-C)

I = 10

I = 17.5

50

_______

40

_______

10

_______

10

_______

(1)

3. Assume Y = 50, C = 40, I = 10, mps = 0.2, M = ?

M = 1 / mps = 1 / 0.2 = 5

a. What would be additional Income and Consumption if Investment were to increase by 7.5? Y = addl I x K = 7.5 x 5 = 37.5, the additional Y b. What would be total Y and C as a result of the foregoing? Yt = Y 1 + Y = 50 + 37.5 = 87.5, total Y Y = C + I, C = Y I C = 87.5 17.5 = 70, total C

Y C I S (Y-C)

I = 10

I = 17.5

50

40

10

17.5

10

_______

(1)

87.5

70

M = 1 / mps = 1 / 0.2 = 5 a. What would be additional Income and Consumption if Investment were to increase by 7.5?

b. What would be total Y and C as a result of the foregoing? Yt = Y 1 + Y = 50 + 37.5 = 87.5, total Y Y = C + I, C = Y I C = 87.5 17.5 = 70, total C c. Compute Additional

Savings

S (Y-C)

I = 10

I = 17.5

50

40

10

17.5

10

_______

(1)

87.5

70

M = 1 / mps = 1 / 0.2 = 5 a. What would be additional Income and Consumption if Investment were to increase by 7.5?

b. What would be total Y and C as a result of the foregoing? Yt = Y 1 + Y = 50 + 37.5 = 87.5, total Y Y = C + I, C = Y I C = 87.5 17.5 = 70, total C c. Compute Additional

Y C I S (Y-C)

I = 10

I = 17.5

50

40

10

17.5

10

17.5 (5)

(1)

87.5

70

Given: a = P50B

1.

Solving for full employment equilibrium Y when there are values for C & I & G can be computed

Given: a = P50B

1.

Solving for full employment equilibrium Y when there are values for C & I & G can be computed Yg = G x K, M or K = 1 / 1-mpc = 1/ 1-0.75 = 1/0.25 = 4 100 = G x 4 G = 100 / 4 = 25, the Government Spending G Y = a + by + I + G = 50 + 0.75 y + 50 + 25 = 125 + 0.75 y (y 0.75y) = 125 Y = 500, the full employment equilibrium Ye

(GNI = C + I + G) Given: a = P50B, b = 75%, I = 50, Yg=100, G=25, Ye =500

Y,C, C+I, C+I+G

Compute and graph. Assume that C = 50 + yd

1. Compute for the break-even point . 2. How much is equilibrium income where Y = C + I

assuming investment is P50B? 3. How much is equilibrium income where Y = C = I + G if Government Spending is P20B? 4. Graph the aforementioned equations. 5. Compute the multiplier at each of the ff mpcs given an investment of P5B: Mpc Multiplier Yg (Income Generated) 50% 45%

Government Spending

As determined from the HH,

The level of income where there is no

Inflationary Gap

Occurs when aggregate demand C + I + G exceeds

equilibrium income Y

Deflationary Gap

Occurs when aggregate demand C + I + G fall short of equilibrium income Y

Y C I G C+I + G

100

125

50

25

200

200

300 400 500

200

275 350 425

50

50 50 50

25

25 25 25

275

350 425 500

Y=C+S C+ I

C+I+G

200

100 50 0 0 50 100 150 200 250 300 350 400 450 500 550 600 Y

S

I

-50

Income

Fiscal Policy

When the government uses its powers to influence

total spending either directly by changingits purchases of goods and services or indirectly by altering the disposable incomes of persons to changes in the level of taxation or transfer outlays

Fiscal Policies

1) Periods of deflation

Deficit budget (government spending more than

what it collects through taxes) or tax cuts

2) Periods of inflation

Surplus budget (government spending less than its budget) or balanced budget or tax increases

The Expenditure Impact

The Supply Impact

- Introduction to EconomicsUploaded byEmily Zhang
- arthakrantiUploaded byAmit Joshi
- M.com. - I - Eco. of Global Trade & FinanceUploaded byPrateek Upadhyay
- ExeSumUploaded byVin od
- Morocco ReportUploaded byDavid Nicholson
- Analysis of Municipality TernateUploaded bySuleman S Al-Qalby
- Econ Paper 9Uploaded byJoe
- Cassette 2013Uploaded bygas bagas
- arthakrantiUploaded byakhil_kodali
- Business EconomicsUploaded bypriya
- Government_Transparency_Guide1.pdfUploaded byzoran gacevski
- Index From Taxation and DebtUploaded byPickering and Chatto
- demand forecasting.pptxUploaded byAnil Sharma
- Deficit Reduction Lessons From Around the WorldUploaded byCommittee For a Responsible Federal Budget
- Mixed EconomyUploaded byLearner84
- 2017 07 17 Testimony FundingPublicSchools CFP VanceGinnUploaded bytexaspolicy
- ITF Country RiskUploaded byNamanzSingh
- Inidan Economic Reforms by M.ahluwaliaUploaded bybabu4u10
- The General Theory (Keynes)Uploaded byThewins Kunyuk
- Global Aging 2010 - An Irreversible Truth - Standard and Poor'sUploaded bydanplai
- Chap_1Uploaded byrbrgroups
- Economics Assignments Set-2Uploaded byKamalakshya Saha
- Interest rates and fiscal deficitUploaded byNaveen Joseph Thomas
- Fiscal Sustainability of Assam -11Uploaded byrakesh.rnbdj
- Economic Survey Summary 2017 18 Volume 1 and 2Uploaded byAshutosh Sharma
- India's Economics Reforms1Uploaded byAshwin M Koshy
- Economics NotesUploaded byUmer Prince
- Monetary Policy in the Post-Crisis World Hopkins Written.pdfUploaded byTBP_Think_Tank
- introduction of managementUploaded byDinda Zuliestiana
- 07_10 Fooled by StimulusUploaded byjallan1984

- The Significance of Logic for LawUploaded byMartin Tongco Fontanilla
- Rule 41 -43 Martin's ReportUploaded byMartin Tongco Fontanilla
- International Covenant on Civil and Political RightsUploaded byTlecoz Huitzil
- International Covenant on Civil and Political RightsUploaded byTlecoz Huitzil
- 205773674 CIR vs Estate of Benigno TodaUploaded byJohn Philip Guia
- Valdez v. AquizilanUploaded byMartin Tongco Fontanilla
- EthicsUploaded byMartin Tongco Fontanilla
- QC v. ABS-CBNUploaded byMartin Tongco Fontanilla
- Alonzo v. IacUploaded byRavenFox
- Commissioner of Customs v. HypermixUploaded byMartin Tongco Fontanilla
- Article-6Uploaded byMartin Tongco Fontanilla
- The Significance of Logic For Law.docxUploaded byMartin Tongco Fontanilla
- Canons 14 22Uploaded byMartin Tongco Fontanilla
- Echevarria v. ParsonsUploaded byMartin Tongco Fontanilla
- Sec 41-43 FontanillaUploaded byMartin Tongco Fontanilla
- Manaement - Managers and RolesUploaded byMartin Tongco Fontanilla
- Expropriation of LandUploaded byMartin Tongco Fontanilla
- Convention and Protocol Relating to the Status of RefugeesUploaded byUNHCR
- Authorized by Law – LegalUploaded byMartin Tongco Fontanilla
- NMSMI v Military SHrineUploaded byMartin Tongco Fontanilla
- Legislative DepartmentUploaded byMartin Tongco Fontanilla
- Requirements for the BarUploaded byMartin Tongco Fontanilla
- Rustan Ang Pascua vs. CA and Irish SagudUploaded byMartin Tongco Fontanilla
- Berces vs. GuingonaUploaded byMartin Tongco Fontanilla
- 02 IPC OverviewUploaded byMartin Tongco Fontanilla
- Digested Case of Rustan Ang vs. CAUploaded byMartin Tongco Fontanilla
- Intro to Business Ethics Part 2Uploaded byMartin Tongco Fontanilla
- Estrellita JulianoUploaded byMartin Tongco Fontanilla
- Consti Syllabus Pt. 3 DigestUploaded byMartin Tongco Fontanilla
- Human Rights; Finals ReviewerUploaded byMartin Tongco Fontanilla

- Library of Universal 01clarUploaded byAharon Ben Ysrayl
- Darius & CyrusUploaded byAmy Neidlinger Harper
- ART 22Uploaded byGopal Gaur
- [Lasse Ringius] Radioactive Waste Disposal at SeaUploaded byHappy Agustina
- Totalitarism in 20th CenturyUploaded byCynthiaLauría
- Cardax FT System Catalogue[1]Uploaded byJess Matt
- Aguirre v Sec. of Justice GR 170723Uploaded byChuck Norris
- Lewis, Randolph. Prankster EthicsUploaded byrichardjcam
- Chapter 8.pptxUploaded bymarwan
- SOR Volume 2 Building.pdfUploaded bysivesh_rathi
- Stage 1 & 2 - Certificate III in Business Administration.docxUploaded byDHRUV KHULLAR
- DEFENDANT’S MOTION TO VACATE JUDGMENT AND MOTION TO DISMISS INDICTMENT (6-26-10)Uploaded byMark Jackson
- ntcle203-105419_10KUploaded byAlex Jhon Quispe Mescco
- New Microsoft Office Word Document (2)Uploaded byBidyut Ray
- ACS Consultant Company, Incorporated v. Williams et al - Document No. 6Uploaded byJustia.com
- _The beauty of compromise_ Revisiting some of the more intractable conflicts in Southasia begs the question_ Could conciliatio.pdfUploaded byMukesh Rawat
- USA v O'Dwyer: Brief for Appellee, Ashton R. O'Dwyer, Jr.Uploaded bynowdoucit
- BankingUploaded byAmit Kumar
- Field Artillery Journal - Jul 1915Uploaded byCAP History Library
- Life History of Sabir Pak _africaUploaded bypromised321
- FevicolUploaded bysj192
- Mediation IndiaUploaded byPadmanabha Narayan
- DmTank_Ring_Wall_Foundation+&+Annular+Raft.xlsUploaded bypcmaraujo
- Solution-Manual-for-Microeconomics-Theory-and-Applications-with-Calculus-4th-Edition-by-Perloff.docUploaded bya629820266
- United States v. Oropeza, A.F.C.C.A. (2014)Uploaded byScribd Government Docs
- Spot ExchangesUploaded byapi-3833893
- LSE - WES Course OutlineUploaded byZargham Aslam Khan
- armuraUploaded byBalaci
- Kanishka Aryan LanguageUploaded byLalit Mishra
- 2. CultureUploaded byRahul Kumar