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AP Macro
Week#7Fall 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-sloma-ap-
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
(1)Level of Output
and IncomeGDP=DI
(2)Consumption
(C)
(3)Saving
(S),(1) – (2)
(4)Average
Propensity to
Consume(APC),(2)/(1)
(5)Average
Propensity to Save (APS),(3)/(1)
(6)Marginal
Propensity to
Consume(MPC),(2)/(1)*
(7)Marginal
Propensity to Save(MPS),(3)/(1)*
(1) $370 $375 $-5 1.01 -.01 .75 .25
(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 .25LO1 27-11
Consumption and Saving Schedules
500
475
450
425
400
375
45°
50
25
0
370 390 410 430 450 470 490 510 530 550
370 390 410 430 450 470 490 510 530 550
C
S
Consumptionschedule
Saving schedule
Saving $5 billion
Dissaving $5 billion
Dissaving$5 billion Saving $5 billion
Co
nsu
mp
tio
n (
bil
lio
ns
of
do
llar
s)S
avin
g(b
illi
on
s o
f d
oll
ars
)
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
APC = APS =consumption
income income
saving
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 = MPS =change in consumption
change in income change in income
change in saving
MPC + MPS = 1
LO1 27-15
Marginal Propensities
Disposable income
Co
nsu
mp
tio
nS
avin
g
S
CMPC =
MPS =
1520 = .75
C ($15)
DI ($20)
DI ($20)
S ($5)
520 = .25
LO1 27-16
Nonincome Determinants
• Amount of disposable income is the main determinant
• Other determinants• Wealth• Borrowing• Expectations• Real interest rates
LO2 27-17
Other Important Considerations
• Switching to real GDP• Changes along schedules• Simultaneous shifts• Taxation• Stability
LO2 27-18
Shifts of C & S Schedules
45°
C0
S0
Real GDP (billions of dollars)
Co
nsu
mp
tio
n(b
illi
on
s o
f d
oll
ars
)S
avin
g(b
illi
on
s o
f d
oll
ars
)C2
C1
S1
S2
0
0
-
+
LO2 27-19
Homework Tonight
• Complete new assignment on learnsmart