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14 Cards in this Set

  • Front
  • Back
The relationship between consumption and income
Consumption function
As national income increases, consumption spending increases, but by diminishing amounts. That is, as notion income increases, the MPC decreases
Absolute income hypothesis
The ratio of the change in consumption spending to a given change in income
Marginal propensity to consume (MPC)
As national income increases, consumption spending increases as well, always by the same amount. That is, as national income increases, MPC remains constant
Relative income hypothesis
A person's consumption spending is related to his or her permanent income
Permanent income hypothesis
Typically, a person's MPC is relatively high during young adulthood, decreases during the middle-age years, and increases when the person is near or in retirement
Life-cycle hypothesis
Permanent income is the regular income a person expects to earn annually. It may differ by some unexpected gain or loss from the actual income earned
Permanent income
the unexpected gain or loss of income that a person experiences. It is the difference between a person's regular and actual income in any year.
Transitory income
Consumption spending that is independent of the level of income
Autonomous consumption
That part of national income not spent on consumption
The change in saving induced by a change in income
Marginal propensity to save (MPS)
A line, drawn at a 45 degree angle, showing all points at which the distance to the horizontal axis equals the distance to the vertical axis
Income curve or 45 degree line
investment spending that producers intend to undertake
Intended investment
investment that is independent of the level of income
Autonomous investment