AP Macro Week#7 Fall 2014

Economics 10/13/ OBJECTIVE: Demonstrate mastery of Chapters#23,24, & 26. AP Macro-I.E Language objective: Write about the business cycle, unemployment and inflation. I. Test#2

Economics 10/14/ NO SCHOOL: Professional Development Day

Economics 10/15/ OBJECTIVE: Sign onto AP Economics Learn Smart Language objective: Read about website. I. Administrative Stuff -login information - ap-economics-5 th -hour - 8KXB-VCP3-N9Q3-BBDK-NDQV II. Homework -complete extra credit on learn smart

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Economics 10/16/ OBJECTIVE: Review Test#2. AP Macro-II.B Language objective: Talk about Test#2. I. Review Test#2 -answer questions about Test#2 II. Learnsmart -continue working on extra credit Homework: Complete extra credit online.

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Economics 10/17/ OBJECTIVE: Begin examination of Chapter#27 AP Macro-II.B Language objective: Talk about basic macroeconomic relationships. I. Journal#22 -notes on basic economic relationships Homework: Complete new assignment on Learnsmart by Sunday at Midnight.

Income Consumption and Saving Consumption and saving Primarily determined by DI Direct relationship Consumption schedule Planned household spending (in our model) Saving schedule DI minus C Dissaving can occur LO1 27-9

Income, Consumption, and Saving LO

Consumption and Saving Schedules Consumption and Saving Schedules (in Billions) and Propensities to Consume and Save (1) Level of Output and Income GDP=DI (2) Consumption (C) (3) Saving (S), (1) – (2) (4) Average Propensity to Consume (APC ), (2)/(1) (5) Average Propensity to Save (APS), (3)/(1) (6) Marginal Propensity to Consume (MPC),  (2)/  (1)* (7) Marginal Propensity to Save (MPS),  (3)/  (1)* (1) $370$375$ (2) (3) (4) (5) (6) (7) (8) (9) (10) LO

Consumption and Saving Schedules ° C S Consumption schedule Saving schedule Saving $5 billion Dissaving $5 billion Dissaving $5 billion Saving $5 billion Consumption (billions of dollars) Saving (billions of dollars) Disposable income (billions of dollars) LO

Average Propensities Average propensity to consume (APC) Fraction of total income consumed Average propensity to save (APS) Fraction of total income saved APC =APS = consumption income saving APC + APS = 1 LO

Global Perspective LO

Marginal Propensities Marginal propensity to consume (MPC) Proportion of a change in income consumed Marginal propensity to save (MPS) Proportion of a change in income saved MPC =MPS = change in consumption change in income change in saving MPC + MPS = 1 LO

Marginal Propensities Disposable income Consumption Saving S C MPC = MPS = =.75  C ($15)  DI ($20)  S ($5) 5 20 =.25 LO

Nonincome Determinants Amount of disposable income is the main determinant Other determinants Wealth Borrowing Expectations Real interest rates LO

Other Important Considerations Switching to real GDP Changes along schedules Simultaneous shifts Taxation Stability LO

Shifts of C & S Schedules 45° C0C0 S0S0 Real GDP (billions of dollars) Consumption (billions of dollars) Saving (billions of dollars) C2C2 C1C1 S1S1 S2S LO

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