Consumption Flashcards
1
Q
Marginal propensity to consume
A
How much more people will spend for every additional dollar of income
2
Q
Autarky
A
Self-sufficient, someone who doesn’t need the banking system
3
Q
What does the C stand for in GDP
A
Consumption expenditure (based on g/s by households)
- biggest component of UK GDP but the most volatile
4
Q
Keynesian Consumption function
A
C = a + by(d)
a = not related to income (saving, wealth)
b = marginal propensity to consume
y(d) = current disposable income (Y-T), Income - Tax
5
Q
Drawback of Keynesian function
A
Incomplete, more smoother with preference
6
Q
Benefits of Two-period model vs Keynesian model
A
- Focuses on lifetime not current income
- Interest rates
- Impatience
