Matakuliah
Tahun
: J0594-Teori Ekonomi
: 2009
BASIC MACROECONOMIC
RELATIONSHIPS
Pertemuan 6
Basic Relationships
•
•
•
•
•
Bina Nusantara University
Income-Consumption
Income-Saving
45° Line
C = DI on the Line
S = DI - C
3
Consumption and Saving
•
•
•
•
•
The Consumption Schedule
The Saving Schedule
Break-Even Income
Average Propensity to Consume (APC)
Average Propensity to Save (APS)
Consumption
APC =
Income
Bina Nusantara University
APS =
Saving
Income
4
Consumption and Saving
• Marginal Propensity to Consume (MPC)
• Marginal Propensity to Save (MPS)
MPC =
MPS =
Bina Nusantara University
Change in Consumption
Change in Income
Change in Saving
Change in Income
5
Consumption and Saving
(1)
Level of
(2)
Output
ConsumpAnd
tion
Income
(C)
(GDP=DI)
(1) $370
(4)
(5)
(6)
(7)
Average
Average
Marginal
Marginal
Propensity Propensity Propensity Propensity
(3)
to Consume to Save
to Consume to Save
Saving (S)
(APC)
(APS)
(MPC)
(MPS)
(1-2)
(2)/(1)
(3)/(1)
Δ(2)/Δ(1)
Δ(3)/Δ(1)
$375
$-5
1.01
-.01
(2)
390
390
0
1.00
.00
(3)
410
405
5
.99
.01
(4)
430
420
10
.98
.02
(5)
450
435
15
.97
.03
(6)
470
450
20
.96
.04
(7)
490
465
25
.95
.05
(8)
510
480
30
.94
.06
(9)
530
495
35
.93
.07
510
40
.93
.07
Bina Nusantara University
(10) 550
.75
.25
.75
.25
.75
.25
.75
.25
.75
.25
.75
.25
.75
.25
.75
.25
.75
.25
6
Consumption and Saving
Consumption (billions of dollars)
Consumption and Saving Schedules
500
C
475
450
425
Saving $5 Billion
Consumption
Schedule
400
375
Dissaving $5 Billion
Bina Nusantara University
Saving
(billions of dollars)
45°
370 390 410 430 450 470 490 510 530 550
Disposable Income (billions of dollars)
50
Dissaving
Saving Schedule
25 $5 Billion
Saving $5 Billion
S
0
7
370 390 410 430 450 470 490 510 530 550
Consumption and Saving
GLOBAL PERSPECTIVE
Average Propensities to Consume
Select Nations GDPs
Average Propensities to Consume
.80
.85
.90
.95
1.00
United States
.963
Canada
.958
United Kingdom
.953
Japan
.942
Germany
.896
Netherlands
.893
Italy
.840
Bina Nusantara University
France
.833
8
Source: Statistical Abstract of the United States, 2006
Consumption and Saving
• MPC + MPS = 1
• MPC and MPS as Slopes
• Nonincome Determinants of
Consumption and Saving
–
–
–
–
Bina Nusantara University
Wealth Effect
Expectations
Real Interest Rates
Household Debt
9
Consumption and Saving
• Other Important Considerations
• Changes Along Schedules
• Switch to Real GDP
• Schedule Shifts
• Stability
• Taxation
Bina Nusantara University
10
Interest Rate and Investment
•
•
•
•
Bina Nusantara University
Expected Rate of Return (r)
The Real Interest Rate (i)
Meaning of r = i
Investment Demand Curve
11
Interest Rate and Investment
The Investment Demand Curve
16%
14%
12%
10%
8%
6%
4%
2%
0%
Bina Nusantara University
$ 0
5
10
15
20
25
30
35
40
16
14
r and i (percent)
Cumulative
Amount of
Investment
Having This
Rate of
Expected
Rate of
Return or Higher
(i)
Return (r)
12
10
8
6
4
2
ID
0
5
10
15
20
25
30
35
Investment (billions of dollars)
40
12
Interest Rate and Investment
• Shifts of the Investment Demand
Curve
– Acquisition, Maintenance, and
Operating Costs
– Business Taxes
– Technological Change
– Stock of Capital Goods on Hand
– Expectations
Bina Nusantara University
13
Interest Rate and Investment
Shifts in the Investment Demand Curve
r and i (percent)
Increase in
Investment Demand
Decrease in
Investment
Demand
0
Bina Nusantara University
Investment (billions of dollars)
ID2 ID0
ID1
14
Interest Rate and Investment
• Instability of Investment
–
–
–
–
Bina Nusantara University
Durability
Irregularity of Innovation
Variability of Profits
Variability of Expectations
15
The Multiplier Effect
W 8.2
The Multiplier and the Marginal Propensities
Multiplier =
Change in Real GDP
Initial Change in Spending
Multiplier =
1
1 - MPC
-orMultiplier =
1
MPS
Bina Nusantara University
Graphically…
16
The Multiplier Effect (2)
Tabular and Graphical Views
Increase in Investment of $5
Second Round
Third Round
Fourth Round
Fifth Round
All other rounds
$20.00
(3)
Change in
Change in
(1)
Saving
Change in Consumption
(MPC = .75) (MPC = .25)
Income
$ 5.00
$ 3.75
$ 1.25
3.75
2.81
.94
2.81
2.11
.70
2.11
1.58
.53
1.58
1.19
.39
4.75
3.56
1.19
Total
$ 20.00
5.00
Bina Nusantara University
$ 5.00
$4.75
15.25
13.67
11.56
8.75
$ 15.00
$1.58
$2.11
$2.81
ΔI=
$5 billion
$3.75
$5.00
1
2
3
4
Rounds of Spending
5
All
17
The Multiplier Effect
The MPC and the Multiplier
MPC
Multiplier
.9
10
.8
5
.75
4
.67
Bina Nusantara University
.5
3
2
18