Microeconomics

1

1. Real sector – short-run macroeconomics

a) Consumption – Income – Savings b) Investment c) Multiplier

2

a) CONSUMPTION (C), INCOME (Y), SAVINGS (S) C

500 400 B 300 A 200 100 450

100

200

300

400

500

600

700

Y

Income – Consumption - Savings

Y=C+S Income – the key determinant of consumption and savings

Disposible income

24.000 25.000 26.000 27.000 28.000 29.000 30.000

Consumption

24.110 25.000 25.850 26.600 27.240 27.830 28.360 -110 0 + 150 + 400 + 760

Savings

+ 1.170 + 1.640

THE CONSUMPTION FUNCTION

Important relationship in macroeconomics – Y i C Possible outcomes: C > Y; C = Y; C < Y. The slope of the function shows that: a. C increases with the increase in Y b. C increases with a slower rate than Y c. C absolutely increases and relatively decreases in Y d. S increases with the same rate or faster than Y e. S absolutely and relatively increases in Y

CONSUMPTION FUNCTION

CONSUMPTION AND DISPOSIBLE INCOME

THE SAVINGS FUNCTION

Relationship between Y and S Y=C+S S=Y–C Possible outcomes: a. Negative savings (C > Y) b. Zero savings S = 0 (C = Y) c. Positive savings (C < Y)

THE SAVINGS FUNCTION

THE SAVINGS AND CONSUMPTION FUNCTIONS

S, C

500 CY S C=Y C

300

400

500

600

700

Y

THE MARGINAL PROPENSITIES

• The marginal propensity to consume (MPC) is the extra money that people consume when they receive an extra dollar of income • The marginal propensity to save (MPS) - is the extra money that people save when they receive an extra dollar of income

Y=C+S MPC+MPS=1

The slope of C is its MPC

Disposible income

24.000 25.000 26.000 27.000 28.000 29.000 30.000

Consumption

24.110 25.000

MPC

890/1000= 0,89 0,85 -110 0

Savings

MPS

110/1000= 0,11 0,15

25.850 26.600 27.240 27.830 28.360

0,75 0,64 0,59 0,53

+ 150 + 400 + 760 + 1.170 + 1.640

0,25 0,36 0,41 0,47

FAMILY BUDGET EXPENDITURES – regular patterns

FAMILY BUDGET EXPENDITURES...