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