1. The document discusses several economic theories of consumption, including the absolute income hypothesis proposed by Keynes which states that consumption is determined by current income.
2. It also covers Duesenberry's relative income hypothesis where consumption depends on income relative to others, as well as the life cycle hypothesis of Ando and Modigliani where consumption varies over one's lifetime based on earnings and savings.
3. Finally, it summarizes Milton Friedman's permanent income hypothesis which argues that consumption is based on estimated long-term future income rather than current or transitory income fluctuations.
Consumption function is explained in detail with the use of four theories.pptxAroutselvamChanemoug1
This document discusses several economic theories of consumption:
1) Keynes' Absolute Income Hypothesis which states consumption is determined by current income level. Consumption increases but at a decreasing rate as income rises.
2) Duesenberry's Relative Income Hypothesis where consumption depends on income relative to others. Higher income individuals have lower consumption-to-income ratios.
3) Ando-Modigliani's Life Cycle Hypothesis which models consumption as highest when young/old and savings peak during middle age to fund retirement.
4) Friedman's Permanent Income Hypothesis where consumption depends on expected long-term rather than temporary income changes.
This document summarizes four major theories of consumption function:
1) Absolute income hypothesis proposed by Keynes that consumption is based on current income and increases but at a decreasing rate as income rises.
2) Relative income hypothesis by Duesenberry that consumption depends on one's income relative to others in society.
3) Permanent income hypothesis by Friedman that consumption depends primarily on permanent income rather than transitory income fluctuations.
4) Life cycle hypothesis by Modigliani that consumption seeks to maintain a steady level over one's lifetime by saving during prime earning years and spending during periods of low income such as retirement.
1. The Absolute Income Hypothesis developed by Keynes states that aggregate consumption is a linear or non-linear function of current disposable income. Consumption increases but by less than the increase in income. In the short run the relationship is non-proportional, but in the long run it becomes proportional.
2. The Relative Income Hypothesis by Duesenberry holds that consumption depends on relative income compared to others rather than absolute income. People attempt to keep up with their neighbors and consumption patterns are interdependent. The past peak income also influences current consumption.
3. Milton Friedman's Permanent Income Hypothesis argues that consumption depends on permanent rather than current income. Income has permanent and transitory components
The document discusses the consumption function, which models the relationship between total consumption and national income. Consumption is defined as an increasing function of income. The average propensity to consume (APC) is the ratio of consumption to income and declines as income rises. The marginal propensity to consume (MPC) is the change in consumption from a change in income and is assumed to be positive but less than 1. Keynes' psychological law of consumption states that consumption increases less than proportionately to increases in income. Determinants of consumption include subjective psychological factors as well as objective factors like wages, fiscal policy, and interest rates. Theories like Duesenberry's relative income hypothesis model consumption as interdependent and influenced by social
Consumption and investment are the two components of aggregate demand in a simple two-sector macroeconomic model that assumes no government or foreign trade. Consumption is determined by disposable income and other factors, while savings is the portion of disposable income not consumed. The marginal propensity to consume measures how consumption changes with income, and is between 0 and 1. Determinants of consumption and savings include income, interest rates, prices, wealth, and demographic factors.
Income and consumption function hypothesis.pptxVinothM59282
The document discusses several economic theories related to consumption behavior:
1. Keynes' psychological law of consumption states that as income increases, consumption increases but not proportionately, with marginal propensity to consume being less than one.
2. Duesenberry's relative income hypothesis suggests consumption depends more on relative income compared to others than absolute income levels.
3. Friedman's permanent income hypothesis proposes consumption is based on expected long-term or permanent income rather than transitory income fluctuations.
4. The life cycle hypothesis developed by Modigliani suggests individuals' saving and consumption varies over their lifetime, with dissaving occurring in retirement.
The document summarizes several economic theories of consumption:
1) John Maynard Keynes theorized that consumption depends on current income, while later models incorporated expected future income and wealth.
2) Irving Fisher introduced intertemporal choice theory, assuming consumers maximize lifetime utility subject to budget constraints.
3) Franco Modigliani's life-cycle hypothesis proposes consumption varies over a person's life cycle as they save during working years and dissave in retirement.
4) Milton Friedman's permanent income hypothesis views current income as having permanent and transitory components, with consumption based on permanent income.
1. The document discusses theories of consumption and investment in macroeconomics.
2. It covers Keynes' consumption function, the life cycle hypothesis, permanent income hypothesis, and relative income hypothesis as theories of consumption. It also discusses the accelerator theory and neoclassical theory as explanations of business fixed investment.
3. The theories attempt to explain factors that determine consumption and investment levels, such as income, wealth, interest rates, and expectations of future income. They seek to understand how consumption and investment influence economic growth and business cycles.
Consumption function is explained in detail with the use of four theories.pptxAroutselvamChanemoug1
This document discusses several economic theories of consumption:
1) Keynes' Absolute Income Hypothesis which states consumption is determined by current income level. Consumption increases but at a decreasing rate as income rises.
2) Duesenberry's Relative Income Hypothesis where consumption depends on income relative to others. Higher income individuals have lower consumption-to-income ratios.
3) Ando-Modigliani's Life Cycle Hypothesis which models consumption as highest when young/old and savings peak during middle age to fund retirement.
4) Friedman's Permanent Income Hypothesis where consumption depends on expected long-term rather than temporary income changes.
This document summarizes four major theories of consumption function:
1) Absolute income hypothesis proposed by Keynes that consumption is based on current income and increases but at a decreasing rate as income rises.
2) Relative income hypothesis by Duesenberry that consumption depends on one's income relative to others in society.
3) Permanent income hypothesis by Friedman that consumption depends primarily on permanent income rather than transitory income fluctuations.
4) Life cycle hypothesis by Modigliani that consumption seeks to maintain a steady level over one's lifetime by saving during prime earning years and spending during periods of low income such as retirement.
1. The Absolute Income Hypothesis developed by Keynes states that aggregate consumption is a linear or non-linear function of current disposable income. Consumption increases but by less than the increase in income. In the short run the relationship is non-proportional, but in the long run it becomes proportional.
2. The Relative Income Hypothesis by Duesenberry holds that consumption depends on relative income compared to others rather than absolute income. People attempt to keep up with their neighbors and consumption patterns are interdependent. The past peak income also influences current consumption.
3. Milton Friedman's Permanent Income Hypothesis argues that consumption depends on permanent rather than current income. Income has permanent and transitory components
The document discusses the consumption function, which models the relationship between total consumption and national income. Consumption is defined as an increasing function of income. The average propensity to consume (APC) is the ratio of consumption to income and declines as income rises. The marginal propensity to consume (MPC) is the change in consumption from a change in income and is assumed to be positive but less than 1. Keynes' psychological law of consumption states that consumption increases less than proportionately to increases in income. Determinants of consumption include subjective psychological factors as well as objective factors like wages, fiscal policy, and interest rates. Theories like Duesenberry's relative income hypothesis model consumption as interdependent and influenced by social
Consumption and investment are the two components of aggregate demand in a simple two-sector macroeconomic model that assumes no government or foreign trade. Consumption is determined by disposable income and other factors, while savings is the portion of disposable income not consumed. The marginal propensity to consume measures how consumption changes with income, and is between 0 and 1. Determinants of consumption and savings include income, interest rates, prices, wealth, and demographic factors.
Income and consumption function hypothesis.pptxVinothM59282
The document discusses several economic theories related to consumption behavior:
1. Keynes' psychological law of consumption states that as income increases, consumption increases but not proportionately, with marginal propensity to consume being less than one.
2. Duesenberry's relative income hypothesis suggests consumption depends more on relative income compared to others than absolute income levels.
3. Friedman's permanent income hypothesis proposes consumption is based on expected long-term or permanent income rather than transitory income fluctuations.
4. The life cycle hypothesis developed by Modigliani suggests individuals' saving and consumption varies over their lifetime, with dissaving occurring in retirement.
The document summarizes several economic theories of consumption:
1) John Maynard Keynes theorized that consumption depends on current income, while later models incorporated expected future income and wealth.
2) Irving Fisher introduced intertemporal choice theory, assuming consumers maximize lifetime utility subject to budget constraints.
3) Franco Modigliani's life-cycle hypothesis proposes consumption varies over a person's life cycle as they save during working years and dissave in retirement.
4) Milton Friedman's permanent income hypothesis views current income as having permanent and transitory components, with consumption based on permanent income.
1. The document discusses theories of consumption and investment in macroeconomics.
2. It covers Keynes' consumption function, the life cycle hypothesis, permanent income hypothesis, and relative income hypothesis as theories of consumption. It also discusses the accelerator theory and neoclassical theory as explanations of business fixed investment.
3. The theories attempt to explain factors that determine consumption and investment levels, such as income, wealth, interest rates, and expectations of future income. They seek to understand how consumption and investment influence economic growth and business cycles.
This document discusses consumption, saving, and investment from a macroeconomic perspective. It provides definitions and concepts related to consumption functions, average and marginal propensities to consume, and how consumption and saving schedules relate to disposable income. It also discusses factors that influence consumption, such as wealth, borrowing, expectations, and interest rates. Investment is introduced as dependent on the expected rate of return and real interest rates. The relationship between these factors is important for understanding economic growth and business cycles from a macro perspective.
The document discusses various determinants and theories of consumption functions, including subjective psychological factors, objective external factors like changes in wages and fiscal policy, and relative income hypotheses developed by Duesenberry which posit that consumption preferences are interdependent and demonstrate the tendency of individuals to emulate the consumption patterns of wealthier peers. It also examines measures that can raise the propensity to consume and provides an overview of different types of consumption function theories including absolute, relative, permanent income, and life cycle hypotheses.
Assignment of Macroeconomic Consumption Function
Consumption Function: Average Propensity to Consume and Marginal Propensity to Consume
Graphical Measurement of APC and MPC:
The document summarizes several theories of consumption:
1) The Absolute Income Hypothesis proposed by Keynes posits that consumption increases as income increases, but not as much. However, it relies more on introspection than data and some properties failed empirical tests.
2) The Relative Income Hypothesis by Duessenberry states consumption depends on one's income relative to others, not absolute income. If others' income rises, one's consumption rises to maintain relative position.
3) Milton Friedman's Permanent Income Hypothesis argues current consumption depends on expected long-term ("permanent") income, not temporary fluctuations. Permanent income includes earnings from assets and skills.
4) The Life
Permanent and Life Cycle Income HypothesisJosephAsafo1
The document discusses the Permanent Income Hypothesis (PIH) and Life Cycle Hypothesis (LCH). It explains that according to PIH, consumption is based on permanent income rather than current income. Current income has both permanent and transitory components. The LCH suggests that consumption varies over a person's life cycle as they save when young and spend when retired to maintain smooth consumption levels. The LCH consumption function shows consumption depends on both wealth and income levels over a person's lifetime.
1) The document discusses Keynes' consumption function and the marginal propensity to consume. It also discusses later challenges to Keynes' theory from studies using longer time series data which found average propensity to consume to be stable, not falling with increased income.
2) The consumption-saving choice is analyzed using Irving Fisher's intertemporal model which uses budget constraints and indifference curves to represent preferences over time periods. This helps explain findings from different data sets.
3) Later, the life-cycle hypothesis and permanent income hypothesis were proposed to better explain consumption behavior, incorporating randomness in incomes and consumption smoothing over a lifetime.
The document summarizes the relative income hypothesis proposed by Dusenberry in 1949. The key points are:
1) Dusenberry argued that consumption depends more on a person's relative income position compared to others in their community, rather than their absolute income level. People will consume more if they live in wealthier communities to maintain their standard of living.
2) In the short run, the average propensity to consume is greater than the marginal propensity to consume and the relationship between income and consumption is not proportional. In the long run, consumption increases proportionally with income and the average propensity to consume equals the marginal propensity to consume.
3) Dusenberry also believed consumption
The document discusses the consumption function, which states that when income increases, consumption increases as well, but to a lesser degree. It defines key terms like marginal propensity to consume, average propensity to consume, and explains the relationship between income and consumption using graphs and tables. The consumption function assumes stable economic conditions and consumer preferences, but may not apply during times of economic instability.
- Keynes proposed the consumption function which states that consumption is determined by current income and that the marginal propensity to consume decreases as income rises.
- Later studies using long time series data found that the average propensity to consume remained stable over time, contradicting Keynes' theory.
- Economists like Fisher, Modigliani, and Friedman developed models to explain long-run consumption behavior based on lifetime income and preferences for smoothing consumption over time. They argued consumption depends on permanent income rather than current income alone.
The document discusses the consumption function and its key determinants. It states that consumption (C) equals autonomous consumption (C0) plus induced consumption which varies directly with disposable income (Yd) through a linear function. It also discusses concepts like the marginal propensity to consume (MPC), average propensity to consume (APC), multiplier effect, and aggregate demand. The multiplier expresses the ratio of the change in income to the initial change in investment and depends on the level of MPC. Aggregate demand (AD) equals consumption (C) plus investment (I) plus government spending (G) plus net exports.
This document provides an overview of keynesian economic concepts including:
- Consumption and saving behavior based on disposable income and the marginal propensity to consume
- Equilibrium between total expenditures and income in the economy
- Fiscal policy tools like government spending and taxes that can be used for stabilization through the multiplier effect
- Challenges of discretionary fiscal policy including lags and potential crowding out of private spending
This document provides an overview of keynesian economic concepts including:
- Keynes believed that wages and prices are "sticky downward" and the economy could get "stuck" in a recession.
- Consumption is determined by disposable income and the marginal propensity to consume. The multiplier effect causes changes in autonomous spending like government spending to have amplified effects on income and output.
- Fiscal policy tools like changes in government spending and taxes can be used expansionary to address a recessionary gap or contractionary to address an inflationary gap due to their multiplier effects. However, there are concerns about crowding out and policy lags.
1) Several economists have proposed theories to explain the relationship between consumption and income over time. Keynes proposed that current consumption depends on current income, while Fisher argued that consumption depends on lifetime income and consumers smooth consumption over periods.
2) Modigliani built on Fisher's model with the life-cycle hypothesis, arguing consumption depends on lifetime wealth and income that varies over one's career. Friedman's permanent income hypothesis claims consumption depends on permanent rather than transitory income, allowing consumers to smooth consumption.
3) Hall's random walk hypothesis adds that if consumers have rational expectations, then consumption changes should be unpredictable and only change with unanticipated income or wealth fluctuations. Laibson challenged the assumption of
AIOU Code 802 Introduction To Macroeconomics Semester Spring 2022 Assignment ...Zawarali786
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اگر آپ تعلیمی نیوز، رجسٹریشن، داخلہ، ڈیٹ شیٹ، رزلٹ، اسائنمنٹ،جابز اور باقی تمام اپ ڈیٹس اپنے موبائل پر فری حاصل کرنا چاہتے ہیں ۔تو نیچے دیے گئے واٹس ایپ نمبرکو اپنے موبائل میں سیو کرکے اپنا نام لکھ کر واٹس ایپ کر دیں۔ سٹیٹس روزانہ لازمی چیک کریں۔
نوٹ : اس کے علاوہ تمام یونیورسٹیز کے آن لائن داخلے بھجوانے اور جابز کے لیے آن لائن اپلائی کروانے کے لیے رابطہ کریں۔
Equilibrium level of income is Rs. 320 Crore.
Q2. If in an economy, C = 100 + 0.8Y and I = 50 + 0.1Y. Calculate equilibrium
level of income.
Answer: AD = AS
C + I = Y
100 + 0.8Y + 50 + 0.1Y = Y
150 + 0.9Y = Y
150 = 0.1Y
Y = 150/0.1 = Rs. 1500 Crore
This document discusses key concepts related to consumption functions in economics. It defines consumption as aggregate expenditure on goods and services to satisfy wants. Consumption is determined by and a function of income (C=f(Y)). The simple consumption function is expressed as C=C0+C1Y, where C0 is autonomous consumption and C1 is the marginal propensity to consume. Autonomous consumption refers to minimum spending needed even without income. The document also discusses average and marginal propensity to consume, save, and invest, and how these relate to the multiplier concept in economics.
Consumption function and investment function chapter 2Nayan Vaghela
Consumption function and investment function chapter 2 SYBcom, Investment Function, Marginal efficiency of capital, marginal propensity to consume, Psychological law of consumption
This document summarizes theories of consumption, saving, and investment. It discusses the Keynesian, permanent income hypothesis, and life-cycle models of consumption and saving behavior. Key factors that influence saving rates are discussed, including income levels, income uncertainty, demographic trends, government policies, financial development, and access to pensions/insurance. Empirical evidence generally finds higher saving rates in developing versus industrialized countries, especially in Asia, with foreign saving particularly important in Sub-Saharan Africa.
This chapter discusses the household consumption sector. It defines key terms like average propensity to consume, marginal propensity to consume, and introduces the consumption function. The chapter shows consumption as the largest component of GDP and explores factors that determine consumption levels like disposable income, availability of credit, and consumer expectations. It also discusses theories around consumption behaviors, such as the permanent income hypothesis.
This document discusses consumption, saving, and investment from a macroeconomic perspective. It provides definitions and concepts related to consumption functions, average and marginal propensities to consume, and how consumption and saving schedules relate to disposable income. It also discusses factors that influence consumption, such as wealth, borrowing, expectations, and interest rates. Investment is introduced as dependent on the expected rate of return and real interest rates. The relationship between these factors is important for understanding economic growth and business cycles from a macro perspective.
The document discusses various determinants and theories of consumption functions, including subjective psychological factors, objective external factors like changes in wages and fiscal policy, and relative income hypotheses developed by Duesenberry which posit that consumption preferences are interdependent and demonstrate the tendency of individuals to emulate the consumption patterns of wealthier peers. It also examines measures that can raise the propensity to consume and provides an overview of different types of consumption function theories including absolute, relative, permanent income, and life cycle hypotheses.
Assignment of Macroeconomic Consumption Function
Consumption Function: Average Propensity to Consume and Marginal Propensity to Consume
Graphical Measurement of APC and MPC:
The document summarizes several theories of consumption:
1) The Absolute Income Hypothesis proposed by Keynes posits that consumption increases as income increases, but not as much. However, it relies more on introspection than data and some properties failed empirical tests.
2) The Relative Income Hypothesis by Duessenberry states consumption depends on one's income relative to others, not absolute income. If others' income rises, one's consumption rises to maintain relative position.
3) Milton Friedman's Permanent Income Hypothesis argues current consumption depends on expected long-term ("permanent") income, not temporary fluctuations. Permanent income includes earnings from assets and skills.
4) The Life
Permanent and Life Cycle Income HypothesisJosephAsafo1
The document discusses the Permanent Income Hypothesis (PIH) and Life Cycle Hypothesis (LCH). It explains that according to PIH, consumption is based on permanent income rather than current income. Current income has both permanent and transitory components. The LCH suggests that consumption varies over a person's life cycle as they save when young and spend when retired to maintain smooth consumption levels. The LCH consumption function shows consumption depends on both wealth and income levels over a person's lifetime.
1) The document discusses Keynes' consumption function and the marginal propensity to consume. It also discusses later challenges to Keynes' theory from studies using longer time series data which found average propensity to consume to be stable, not falling with increased income.
2) The consumption-saving choice is analyzed using Irving Fisher's intertemporal model which uses budget constraints and indifference curves to represent preferences over time periods. This helps explain findings from different data sets.
3) Later, the life-cycle hypothesis and permanent income hypothesis were proposed to better explain consumption behavior, incorporating randomness in incomes and consumption smoothing over a lifetime.
The document summarizes the relative income hypothesis proposed by Dusenberry in 1949. The key points are:
1) Dusenberry argued that consumption depends more on a person's relative income position compared to others in their community, rather than their absolute income level. People will consume more if they live in wealthier communities to maintain their standard of living.
2) In the short run, the average propensity to consume is greater than the marginal propensity to consume and the relationship between income and consumption is not proportional. In the long run, consumption increases proportionally with income and the average propensity to consume equals the marginal propensity to consume.
3) Dusenberry also believed consumption
The document discusses the consumption function, which states that when income increases, consumption increases as well, but to a lesser degree. It defines key terms like marginal propensity to consume, average propensity to consume, and explains the relationship between income and consumption using graphs and tables. The consumption function assumes stable economic conditions and consumer preferences, but may not apply during times of economic instability.
- Keynes proposed the consumption function which states that consumption is determined by current income and that the marginal propensity to consume decreases as income rises.
- Later studies using long time series data found that the average propensity to consume remained stable over time, contradicting Keynes' theory.
- Economists like Fisher, Modigliani, and Friedman developed models to explain long-run consumption behavior based on lifetime income and preferences for smoothing consumption over time. They argued consumption depends on permanent income rather than current income alone.
The document discusses the consumption function and its key determinants. It states that consumption (C) equals autonomous consumption (C0) plus induced consumption which varies directly with disposable income (Yd) through a linear function. It also discusses concepts like the marginal propensity to consume (MPC), average propensity to consume (APC), multiplier effect, and aggregate demand. The multiplier expresses the ratio of the change in income to the initial change in investment and depends on the level of MPC. Aggregate demand (AD) equals consumption (C) plus investment (I) plus government spending (G) plus net exports.
This document provides an overview of keynesian economic concepts including:
- Consumption and saving behavior based on disposable income and the marginal propensity to consume
- Equilibrium between total expenditures and income in the economy
- Fiscal policy tools like government spending and taxes that can be used for stabilization through the multiplier effect
- Challenges of discretionary fiscal policy including lags and potential crowding out of private spending
This document provides an overview of keynesian economic concepts including:
- Keynes believed that wages and prices are "sticky downward" and the economy could get "stuck" in a recession.
- Consumption is determined by disposable income and the marginal propensity to consume. The multiplier effect causes changes in autonomous spending like government spending to have amplified effects on income and output.
- Fiscal policy tools like changes in government spending and taxes can be used expansionary to address a recessionary gap or contractionary to address an inflationary gap due to their multiplier effects. However, there are concerns about crowding out and policy lags.
1) Several economists have proposed theories to explain the relationship between consumption and income over time. Keynes proposed that current consumption depends on current income, while Fisher argued that consumption depends on lifetime income and consumers smooth consumption over periods.
2) Modigliani built on Fisher's model with the life-cycle hypothesis, arguing consumption depends on lifetime wealth and income that varies over one's career. Friedman's permanent income hypothesis claims consumption depends on permanent rather than transitory income, allowing consumers to smooth consumption.
3) Hall's random walk hypothesis adds that if consumers have rational expectations, then consumption changes should be unpredictable and only change with unanticipated income or wealth fluctuations. Laibson challenged the assumption of
AIOU Code 802 Introduction To Macroeconomics Semester Spring 2022 Assignment ...Zawarali786
Skilling Foundation
Download Free
Past Papers
Guess Papers
Solved Assignments
Solved Thesis
Solved Lesson Plans
PDF Books
Skilling.pk
Other Websites
Diya.pk
Stamflay.com
Please Subscribe Our YouTube Channel
Skilling Foundation:https://bit.ly/3kEJI0q
WordPress Tutorials:https://bit.ly/3rqcgfE
Stamflay:https://bit.ly/2AoClW8
Please Contact at:
0314-4646739
0332-4646739
0336-4646739
اگر آپ تعلیمی نیوز، رجسٹریشن، داخلہ، ڈیٹ شیٹ، رزلٹ، اسائنمنٹ،جابز اور باقی تمام اپ ڈیٹس اپنے موبائل پر فری حاصل کرنا چاہتے ہیں ۔تو نیچے دیے گئے واٹس ایپ نمبرکو اپنے موبائل میں سیو کرکے اپنا نام لکھ کر واٹس ایپ کر دیں۔ سٹیٹس روزانہ لازمی چیک کریں۔
نوٹ : اس کے علاوہ تمام یونیورسٹیز کے آن لائن داخلے بھجوانے اور جابز کے لیے آن لائن اپلائی کروانے کے لیے رابطہ کریں۔
Equilibrium level of income is Rs. 320 Crore.
Q2. If in an economy, C = 100 + 0.8Y and I = 50 + 0.1Y. Calculate equilibrium
level of income.
Answer: AD = AS
C + I = Y
100 + 0.8Y + 50 + 0.1Y = Y
150 + 0.9Y = Y
150 = 0.1Y
Y = 150/0.1 = Rs. 1500 Crore
This document discusses key concepts related to consumption functions in economics. It defines consumption as aggregate expenditure on goods and services to satisfy wants. Consumption is determined by and a function of income (C=f(Y)). The simple consumption function is expressed as C=C0+C1Y, where C0 is autonomous consumption and C1 is the marginal propensity to consume. Autonomous consumption refers to minimum spending needed even without income. The document also discusses average and marginal propensity to consume, save, and invest, and how these relate to the multiplier concept in economics.
Consumption function and investment function chapter 2Nayan Vaghela
Consumption function and investment function chapter 2 SYBcom, Investment Function, Marginal efficiency of capital, marginal propensity to consume, Psychological law of consumption
This document summarizes theories of consumption, saving, and investment. It discusses the Keynesian, permanent income hypothesis, and life-cycle models of consumption and saving behavior. Key factors that influence saving rates are discussed, including income levels, income uncertainty, demographic trends, government policies, financial development, and access to pensions/insurance. Empirical evidence generally finds higher saving rates in developing versus industrialized countries, especially in Asia, with foreign saving particularly important in Sub-Saharan Africa.
This chapter discusses the household consumption sector. It defines key terms like average propensity to consume, marginal propensity to consume, and introduces the consumption function. The chapter shows consumption as the largest component of GDP and explores factors that determine consumption levels like disposable income, availability of credit, and consumer expectations. It also discusses theories around consumption behaviors, such as the permanent income hypothesis.
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Introduction to Metro in India by cosmo soil.pptxcosmo-soil
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Resume
On June 11-16, several important international events were organized and they are expected
to contribute to Ukraine's resilience and victory: URC2024, the G7 meeting, and the Global
Peace Summit.
According to the IER, real GDP growth slowed slightly to 3.5% yoy in May compared to 4.2%
yoy in April due to significant damage caused by russian attacks on electricity generation.
Restrictions on electricity supply to industry and the population continue: efficient consumption
and the installation of decentralized power generation capacities are a priority.
The Ukrainian Sea Corridor allows an increase in the exports of ores and metallurgical products.
Foreign aid was the lowest in May. However, already in June Ukraine should receive about
USD 4 bn in loans.
In May, as in the previous three months, consumer inflation was slightly above 3% (3.3% yoy).
In June, the NBU again reduced the discount rate – from 13.5% to 13% per annum.
The hryvnia exchange rate has surpassed UAH 40 per dollar due to the growing demand for
cash currency.
The IER is preparing the pub
Accounting for lease a lecture note power point pdfetebarkhmichale
ADVICE TO ALL EMPLOYEES
1. Build a home earlier. Be it rural home or urban home. Building a house at 50 is not an achievement. Don't get used to government houses. This comfort is so dangerous. Let all your family have good time in your house.
2. Go home. Don't stick at work all the year. You are not the pillar of your department. If you drop dead today, you will be replaced immediately and operations will continue. Make your family a priority.
3. Don't chase promotions. Master your skills and be excellent at what you do. If they want to promote you, that's fine if they don't, stay positive to your personal.
development.
4. Avoid office or work gossip. Avoid things that tarnish your name or reputation. Don't join the bandwagon that backbites your bosses and colleagues. Stay away from negative gatherings that have only people as their agenda.
5. Don't ever compete with your bosses. You will burn your fingers. Don't compete with your colleagues, you will fry your brain.
6. Ensure you have a side business. Your salary will not sustain your needs in the long run.
7. Save some money. Let it be deducted automatically from your payslip.
8. Borrow a loan to invest in a business or to change a situation not to buy luxury. Buy luxury from your profit.
9. Keep your life,marriage and family private. Let them stay away from your work. This is very important.
10. Be loyal to yourself and believe in your work. Hanging around your boss will alienate you from your colleagues and your boss may finally dump you when he leaves.
11. Retire early. The best way to plan for your exit was when you received the employment letter. The other best time is today. By 40 to 50 be out.
12. Join work welfare and be an active member always. It will help you a lot when any eventuality occurs.
13.Take leave days utilize them by developing yr future home or projects..usually what you do during yr leave days is a reflection of how you'll live after retirement..If it means you spend it all holding a remote control watching series on Zee world, expect nothing different after retirement.
14. Start a project whilst still serving or working. Let your project run whilst at work and if it doesn't do well, start another one till it's running viably. When your project is viably running then retire to manage your business. Most people or pensioners fail in life because they retire to start a project instead of retiring to run a project.
15. Pension money is not for starting a project or buy a stand or build a house but it's money for your upkeep or to maintain yourself in good health. Pension money is not for paying school fees or marrying a young wife but to look after yourself.
16. Always remember, when you retire never be a case study for living a miserable life after retirement but be a role model for colleagues to think of retiring too.
17. Don't retire just because you are finished or you are now a burden to the company and just wait for your day t
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4. Consumption function gives the relationship between Aggregate
income and Aggregate consumption.
Keynes laid stress on Absolute size of current income as a
determinant of consumption.
Keynes theory of consumption also known as Absolute income
theory of consumption.
6. The entire increase in income is not spent on consumption.
Part of the increase in income is not consumed is saved.
Consumption function (C) = a + bY
Where,
C = Consumption expenditure
a = Intercept
b = Slope (MPC) --- (Change in C / Change in Y)
Y = Income
7. APC = C / Y, (C = a + bY)
APC = a/Y + b
dAPC / dy = -a / y2
APC is decreasing function of income.
Savings is that part of income which is not spent on consumption.
Y = C + S
S = Y – C (C = a + bY)
S = Y – (a + bY)
S = -a + (1 – b)Y
8.
9. S = -a + (1 – b)Y
MPS = dS / dY = 1 – b = 1 – MPC
MPC + MPS = 1
APS = S / Y = -a / Y (1 – b)
dAPS / dY = a / y2
APS is increasing function of income.
10. POLICY IMPLICATIONS
1. APS (S/Y) increases as income increases and MPC < APC. i.e., In
the short run when income increases, MPC and APC decreases but
MPC < APC.
2. During boom period in a business cycle C/Y ratio is smaller than the
average and greater than the average during slumps. So that in the
short run income fluctuates, MPC < APC.
3. In long run MPC = APC, C/Y Ratio is Constant.
12. James Duesenberry was an American economist born in 1918.
He proposed the Relative Income Hypothesis in his book "Income,
Saving and the Theory of Consumer Behavior" published in 1949.
Basic Concepts or Assumptions
1. Individuals consumption patterns are influenced not only by their
absolute income but also by their income relative to others.
2. Consumption of a person does not depend on his current income but
on certain previously reached income level.
13. According to Duesenberry’s Utility function U=U(C0/R0,…CK/RK,…CT/RT)
Utility increases only if the individuals consumption raises relative to that of
the average.
It leads to the result that the individuals C/Y will depend on his position in
the income distribution.
When income (Y) of an individual is below the population average,
Consumption(C) remaining constant, income(Y) is less, C/Y ratio is high.
When income (Y) is more, C/Y ratio is low.
When income (Y) is equal to average population income, C/Y ratio is
constant.
14. Present consumption of individual is not influenced merely by his current, absolute
and relative income but also by the levels of consumption during previous peak
period income Yp.
Based on savings function,
APS = S/Y = a0 + a1 Y/Yp
When income(Y) increases relative to that of Yp APS will be more and vice-versa.
When Y = Yp, APS = (a0+a1)
When Y<Yp, APS will be less.
APC = C/Y = (Y-S)/Y = 1-(S/Y)
C = (1-a0) Y-a1 Y2/Yp ------------ Duesenberry’s Consumption function
15. RATCHET EFFECT
Ratchet effect is an economic phenomenon when a process continues indefinitely
and has difficulty reversing its direction.
process happens in a particular way continuously that it would be extremely
difficult to reverse the direction.
19. Italian-American economist Franco Modigliani propounded the life cycle
hypothesis in 1954.
The life cycle hypothesis refers to an economic theory focusing on how
individuals spend and save money over their lifetimes.
It motivates people to save for retirement during their earnings period instead of
spending all their incomes.
In other words, people like to maintain the same level of expenditure throughout
their life, either by taking credit or using their income.
However, individuals save less in youth, more in middle age, and very little in
old age.
It forms a hump-shaped graph related to consumers’ savings and consumption
patterns.
20.
21. Characteristic stages Youth Age Middle Age Old Age
Earning In this stage, individuals
tend to consume and
spend a lot. Hence, they
earn more and like to
take loans to maintain
their lifestyle.
In this stage, people like
to have stable finance for
their families.
The income becomes
zero, and dependency on
pension and savings
increases.
Expenditure Their expenditure
exceeds their income.
Here the expenditure
remains the same, but
their income gets
increases.
They still try to maintain
the level of expenditure
as before.
Savings Their savings become
negative.
They manage to save
some amount of money
from their income after
clearing all their debts.
All the savings get drawn,
or dissaving occurs to
maintain the expenditure.
24. Developed by Milton Friedman in 1957.
permanent income hypothesis definition refers to the theory that states
that consumers spend their earnings at a level in accord with their
estimated future income over the long term.
The theory suggests that if any economic policy manages to increase
consumers’ income level, their spending will not necessarily increase.
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