AP Macro Week#7 Fall 2014 Economics 10/13/14 http://mrmilewski.com • OBJECTIVE: Demonstrate mastery of Chapters#23,24, & 26. AP Macro-I.E • Language objective: Write about the business cycle, unemployment and inflation . • I. Test#2 Economics 10/14/14 http://mrmilewski.com • NO SCHOOL: Professional Development Day Economics 10/15/14 http://mrmilewski.com • OBJECTIVE: Sign onto AP Economics Learn Smart • Language objective: Read about website. • I. Administrative Stuff -login information -https://connect.mheducation.com/class/b-slomaap-economics-5th-hour - 8KXB-VCP3-N9Q3-BBDK-NDQV • II. Homework -complete extra credit on learn smart Homework Tonight • Complete extra credit on learnsmart Economics 10/16/14 http://mrmilewski.com • OBJECTIVE: Review Test#2. AP Macro-II.B • Language objective: Talk about Test#2. • I. Review Test#2 -answer questions about Test#2 • II. Learnsmart -continue working on extra credit • Homework: Complete extra credit online. Homework Tonight • Complete extra credit on learn smart. Economics 10/17/14 http://mrmilewski.com • OBJECTIVE: Begin examination of Chapter#27 AP Macro-II.B • Language objective: Talk about basic macroeconomic relationships. • I. Journal#22 -notes on basic economic relationships • Homework: Complete new assignment on Learnsmart by Sunday at Midnight. Income Consumption and Saving • Consumption and saving • Primarily determined by DI • Direct relationship • Consumption schedule • Planned household spending (in our model • Saving schedule • DI minus C • Dissaving can occur LO1 27-9 Income, Consumption, and Saving LO1 27-10 Consumption and Saving Schedules Consumption and Saving Schedules (in Billions) and Propensities to Consume and Save (4) (1) Level of Output and Income GDP=DI (2) Consumption (C) (3) Saving (S), (1) – (2) (1) $370 $375 (6) Average Propensity to Consume (APC), Average Propensity to Save (APS), (2)/(1) $-5 (7) Marginal Propensity to Consume Marginal Propensity to Save (3)/(1) (MPC), (2)/(1)* (MPS), (3)/(1)* 1.01 -.01 .75 .25 (5) (2) 390 390 0 1.00 .00 .75 .25 (3) 410 405 5 .99 .01 .75 .25 (4) 430 420 10 .98 .02 .75 .25 (5) 450 435 15 .97 .03 .75 .25 (6) 470 450 20 .96 .04 .75 .25 (7) 490 465 25 .95 .05 .75 .25 (8) 510 480 30 .94 .06 .75 .25 (9) 530 495 35 .93 .07 .75 .25 (10) 550 510 40 .93 .07 .75 .25 LO1 27-11 Consumption (billions of dollars) Consumption and Saving Schedules 500 C 475 450 425 Saving $5 billion Consumption schedule 400 375 Dissaving $5 billion Saving (billions of dollars) 45° 370 390 410 430 450 470 490 510 530 550 50 25 0 Dissaving Saving schedule S $5 billion Saving $5 billion 370 390 410 430 450 470 490 510 530 550 Disposable income (billions of dollars) LO1 27-12 Average Propensities • Average propensity to consume (APC) • Fraction of total income consumed • Average propensity to save (APS) • Fraction of total income saved consumption APC = income APS = saving income APC + APS = 1 LO1 27-13 Global Perspective LO1 27-14 Marginal Propensities • Marginal propensity to consume (MPC) • Proportion of a change in income • consumed Marginal propensity to save (MPS) • Proportion of a change in income saved MPC = change in consumption change in income MPS = change in saving change in income MPC + MPS = 1 LO1 27-15 Marginal Propensities C Consumption 15 MPC = 20 = .75 C ($15) Saving DI ($20) MPS = 5 = .25 20 S S ($5) DI ($20) Disposable income LO1 27-16 Nonincome Determinants • Amount of disposable income is the main • LO2 determinant Other determinants • Wealth • Borrowing • Expectations • Real interest rates 27-17 Other Important Considerations • Switching to real GDP • Changes along schedules • Simultaneous shifts • Taxation • Stability LO2 27-18 Shifts of C & S Schedules C1 C0 Saving (billions of dollars) Consumption (billions of dollars) C2 LO2 0 45° S2 S0 S1 + 0 Real GDP (billions of dollars) 27-19 Homework Tonight • Complete new assignment on learnsmart