Income and Expenditure. As people earn more income, they spend more, but also save more In percentage terms, people with higher incomes spend less and.

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Presentation transcript:

Income and Expenditure

As people earn more income, they spend more, but also save more In percentage terms, people with higher incomes spend less and save more (but do spend more money) javascript:top.OpenSupp('figure',16,1)

When people earn new disposable income, they spend some and save some Marginal Propensity to Consume javascript:top.OpenSupp('figure',16,1)

.. The individual consumption model can be extended to a national model: Aggregate Consumption As the country has more disposable income, it spends more Curve will shift up or down based on society’s expectation for future income javascript:top.OpenSupp('figure',16,1)

MPC and MPS Disposable income can be saved or spent MPC + MPS = 1 If one person spends, another person gains income, which adds to their disposable income Spending creates more spending: The Multiplier! Total increase caused by new spending = spending times multiplier

Investment Multiplier When companies invest, they buy products Sellers of products earn disposable income and spend some Multiplier ripples the consumption across economy