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AS INCOME RISES, CONSUMPTION RISES, BUT NOT AS QUICKLY. AVERAGE PROPENSITY TO CONSUME. PERCENTAGE OF DI SPENT. PERCENTAGE OF DI SAVED. APC? 0.9375 93.75% IS SPENT TO SERVICES & GOODS APS? 0.0625 6.25% OF HIS INCOME GOES TO HIS SAVINGS APC + APS = 1. - PowerPoint PPT Presentation
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AS INCOME RISES, CONSUMPTION RISES, BUT NOT
AS QUICKLY
AVERAGE PROPENSITY TO CONSUME
PERCENTAGE OF DI SPENT
PERCENTAGE OF DI SAVED
APC?• 0.9375• 93.75% IS SPENT TO SERVICES & GOODSAPS?• 0.0625• 6.25% OF HIS INCOME GOES TO HIS SAVINGS • APC + APS = 1
DISPOSABLE INCOME SAVING
80, 000 5,000
• IS IT POSSIBLE TO HAVE AN APC GREATER THAN 1?
• WHAT DOES 1 SUGGEST?– YOU SPEND BEYOND YOUR MEANS. YOU SPEND
MORE THAN YOUR INCOME– NO SAVINGS!
DISPOSABLE INCOME CONSUMPTION
25,000 29,000
YEAR DISPOSABLE INCOME CONSUMPTION
2013 18,000 10,000
2014 21, 000 14, 000
AS INCOME RISES, CONSUMPTION RISES (BUT BY LESS THAN DOES INCOME)C
4,000 / 3,000 = 1.33
MPC?
YEAR DISPOSABLE INCOME CONSUMPTION
2013 18,000 10,000
2014 21, 000 14, 000
AS INCOME RISES, BOTH CONSUMPTION AND SAVING WILL RISE
SOLVE FOR SAVINGS FIRST:8,000 -7,000 = 1,000
MPS?
1,000/ 3,000 = .33
SIGNIFICANCE OF “C” CROSSING THE 45* LINE?
CONSUMPTION < DI
MPC? = DI IS FROM 6 TO 8
DI = FROM 68
C?5.5
7
1.5/2 = 0.75
CONSUMPTION SCHEDULE
CONSUMPTION > DI
SAVING FUNCTION
INCOME BELOW 4? = DISSAVING
DISSAVING = SAVING BELOW 0
DI = C + S DI – S = C DI – C = S
FIND C & S IF DISPOSABLE INCOME IS 2
C= 2.5 S= -.5
AUTONOMOUS CONSUMPTION ?
LEVEL OF CONSUMPTION WHEN DISPOSABLE
INCOME IS 0
PEOPLE WILL SPEND A CERTAIN AMOUNT ON
THE NECESSITIES OF LIFE EVEN WITHOUT INCOME
INDUCED CONSUMPTION ?
INDUCED = INFLUENCE/ PERSUADE
CAN A DISPOSABLE INCOME OF 0 INDUCE CONSUMPTION?
AS DISPOSABLE INCOME RISES, INDUCE CONSUMPTION ALSO RISES
AS DISPOSABLE INCOME FALLS, INDUCE CONSUMPTION ALSO FALLS
CONSUMPTION = AUTONOMOUS CONSUMPTION + INDUCED CONSUMPTION
C = AC + IC C – AC = IC C - IC = AC
AUTONOMOUS CONSUMPTION ? INDEPENDENT OF
DISPOSABLE INCOME
LEVEL OF CONSUMPTION WHEN DISPOSABLE
INCOME IS 0AUTONOMOUS
CONSUMPTION IS 40
INDUCED CONSUMPTION
IC? IF 360 IS C
C = AC + IC
IC = 320
3 CATEGORIES OF CONSUMPTION
Things that last a while – at least 3 years
THINGS THAT DON’T LAST LONG
NONDURABLES
SERVICES
set of actions that are performed to provide a set of outcomes for
consumer’s satisfaction
INTANGIBLE
DETERMINANTS OF THE LEVEL OF CONSUMPTION
1) DISPOSABLE INCOME2) CREDIT AVAILABILITY3) STOCK OF LIQUID ASSETS IN THE HANDS OF
THE CONSUMERS4) STOCK OF DURABLE GOODS IN THE HANDS
OF CONSUMERS5) KEEPING UP WITH THE JONESES 6) CONSUMER EXPECTATIONS
Level of DI largely determines the level
of C
AT VERY LOW INCOME LEVELS, PEOPLE
ACTUALLY DISSAVE
PRICE OF CONSUMPTION YOUR DAILY NEEDS DON’T
CHANGE
TO MEET YOUR DAILY NEEDS, YOU BORROW CREDIT OR YOU’LL GO TO
YOUR SAVINGS
LENDER: (CREDO/ BELIEVES) LENDS
RESOURCES
ENTRUSTING: LATER PAYMENTS
DEBTOR: BORROWERCREDIT AVAILABILITY: WHEN
CREDIT IS EASED, PEOPLE TEND TO BORROW MORE
CREDIT AVAILABILITY VARIES INVERSELY WITH THE LEVEL OF
CONSUMER DEBT.THE MORE YOU OWE, THE
LESS CREDIT AVAILABLE
STOCK OF LIQUID ASSETS IN THE HANDS OF THE CONSUMERS OWNED THINGS THAT
CAN BE QUICKLY TURNED INTO CASH
33 million shares of facebook’s stock and the price of the stock rises to 35?
1.15 billion richer at least on paper
Brokers will encourage you to invest your money
on other shares
WOLF OF WALLSTREET:
COMMISSION ON EACH INVESTOR
THEY GET
SALES OF DURABLE GOODS VARY INVERSELY WITH THE STOCK OF CONSUMER DURABLES
IN THE HANDS OF THE CONSUMERS
WHEN PEOPLE HOLD A LARGE STOCK OF CONSUMER DURABLES, CONSUMER
DURABLE SALES TEND TO BE LOW
1999 = 3210 costs P10, 000
SIM CARD COSTS P 1,000
AFTER 15 YEARS = NOKIA LUMIA COSTS P7, 900
AFTER 15 YEARS = MY PHONE AGUA COSTS P2, 988
WHEN PEOPLE HOLD A LARGE STOCK OF CONSUMER DURABLES, CONSUMER
DURABLE SALES TEND TO BE LOW
CONSPICUOUS
STANDING OUT SO AS TO BE CLEARLY VISIBLE
KEEPING UP WITH THE JONESES
IF WE DON’T BUY IT, WE WON’T BE KEEPING UP
KEEPING UP WITH THE JONESES
CONSUMER EXPECTATION
WHEN INFLATION IS EXPECTED, PEOPLE BUY MORE WHEN RECESSION IS EXPECTED,
PEOPLE BUY LESS
ESTIMATING FUTURE EARNINGS UNTIL ONE RETIRES
PERMANENT INCOME HYPOTHESIS
PEOPLE GEAR THEIR CONSUMPTION TO THEIR EXPECTED EARNINGS MORE
THAN TO THEIR CURRENT INCOME
Income is greater than consumption during the middle
ages (30-50)
496 X 2 = 992, 000
992, 000 – 496, 000 = 496, 000 (REMAINING BALANCE)
10, 522 X 60 MONTHS
631, 320 – 496, 000
135, 000 INTEREST
HOW CERTAIN ARE YOU THAT YOU WILL NOT INCUR OTHER
ADDITIONAL/ EMERGENCY EXPENSES WITHING THE NEXT
5 YEARS?