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