Chapter 10 Flashcards
How do you calculate a saving schedule?
S=DI-C
As families consume a smaller and smaller proportion of DI as DI increases, then they must be saving a larger and larger proportion.
Lynn Robbins said what?
Your spending will always rise to equal your income… Unless you protest the contrary.
What are the Non-income Determinants of Consumption and Saving?
Wealth
Borrowing
Expectations
Real Interest Rates
Non Income Determinant of Wealth?
This so called wealth effect shifts the consumption schedule upward and the saving schedule downward. They move in response to households taking advantage of the increased consumption possibilities afforded by the sudden increase in wealth. (The larger the stock of wealth that a household can build up, the larger will be its present and future consumption possibilities.)
Non Income Determinant of Borrowing?
By allowing households to spend more, borrowing shifts the current consumption schedule upward. Stated a bit differently, increased borrowing increases debt (liabilities), which in turn reduces household wealth (since wealth = assets - liabilities). They may be able to consume more now but later they will consume less.
Non Income Determinant of Expectations?
Household expectations about future prices and income may affect current spending and saving.
Non Income Determinant of Real Interest Rates?
When real interest rates (those adjusted for inflation) fall, households tend to borrow more, consume more, and save less.
What is durability referring too?
Because of their durability, capital goods have indefinite useful lifespans. Within limits, purchases of capital goods are discretionary and therefore can be postponed. Firms can scrap or replace older equipment and buildings, or they can patch them up and use them for a few more years.
Variability of expectations?
Business expectations can change quickly when some event suggests a significant possible change in future business conditions. Changes in exchange rates, trade barriers, legislative actions, stock market prices, government economic policies, the outlook for war or peace, court decisions in key labor or antitrust cases, and a host of similar considerations may cause substantial shifts in business expectations.
Variability of Profits?
Current profits affect both the incentive and ability to invest. But profits themselves are highly variable from year to year, contributing to the volatility of investment.
Irregularity of innovation?
New products and processes stimulate investment.
