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15 Cards in this Set

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What is the formula for APC?
Average propensity to consume (APC) = consumption/income
What is the formula for APS?
Average propensity to save (APS) = saving/income
What is the formula for MPC?
Marginal propensity to consume (MPC) = change in consumption/change in income
What is the formula for MPS?
Marginal propensity to save (MPS) = change in saving/change in income
A schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income.
Consumption schedule
A schedule that shows the amounts households plan to save (plan not to send for consumer goods), at different levels of disposable income.
Saving schedule
What are the nonincome determinants of consumption and saving?
1. Wealth (value of both real assets and financial assets
2. Expectations (household expectations about future prices and income)
3. Real Interest Rates
4. Household Debt
5. Taxation
The increase in profit a firm anticipates it will obtain by purchasing capital (or engaging in research and development); expressed as a percentage of the total cost of the investment (or R&D) activity.
Expected rate of return; r = Expected Profit/Investment
The interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation.

It represents: 1) Cost of borrowed funds; 2) Opportunity cost of investing your own funds.
Real interest rate
What is the investment rule?
A specific investment will be undertaken if the expected rate of return, r, equals or exceeds the real interest rate, i.
A curve that shows the amounts of investment demanded by an economy at a series of real interest rates. The level of investment depends on the expected rate of return and the real interest rate.
Investment demand curve (constructed by arraying all potential investment projects in descending order of their expected rates of return)
The investment demand curve reflects an ______ (_______) relationship between the real interest rate and investment and slopes _______.
inverse (negative); downward
The investment demand curve shifts when changes occur in:
1. The costs of acquiring, operating, and maintaining capital goods
2. Business taxes
3. Technology
4. The stock of capital goods on hand
5. Business expectations
Change in the amount (quantity of investment) is caused by:
1. Change in the rate of interest
2. Results in movement along the investment demand curve
The effect on equilibrium GDP of a change in aggregate expenditures or aggregate demand (caused by a change in the consumption schedule, investment, government purchases, or net exports).
Multiplier effect