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Ch. 5

THe household-consumption sector

TermDefinition
Gross domestic product (GDP) the nation's expenditure on all the final goods and services produced in the country during the year at market prices.
What are the three main sectors of GDP Consumption, investment, and government spending
the consumption function as income rises, consumption rises, but not as quickly. A theory by John Maynard Keynes
Average propensity to consume (APC) the percentage of disposable income that is spent; consumption divided by disposable income
Average propensity to save (APS) the percentage of disposable income that is saved; saving divided by disposable income
Marginal propensity to consume (MPC) the change in consumption divided by change in income
Marginal propensity to save (MPS) is change in saving divided by change in income
dissaving when consumption is greater than disposable income. Saving below 0
saving function states that as income rises, saving rises, but not as quickly
Autonomous consumption the minimum amount that people will spend on the necessities of life. our level of consumption when disposable income is 0
induced consumption is spending induced by changes in the level of income
what happens to induced consumption when consumption rises? falls? induced consumption rises by the same amount. falls by the same amount
consumption divides into three categories durable goods, nondurable goods, and services
8 basic determinants of the level of consumption 1)Disposable income2)Credit availability3)Stock of liquid assets 4)Stock of durable goods 5)Keeping up with the Joneses 6)Maintaining a basic standard of living 7)Consumer expectations 8)The wealth effect
conspicuous consumption a person's spending on frivolous goods or services, with the sole purpose of showing off one's wealth
Created by: ltameirao
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