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Chapter 8: Basic Macroeconomic Relationships
The Income Consumption / Income Saving Relationship
The Interest Rate - Investment Relationship
The Multiplier Effect
- The consumption, saving schedule.
- Average and marginal propensities to save/consume.
- APC=consumption/income
- APS=savings/income
- MPC=change in consumption/change in income
- MPS= change in savings/change in income
- Nonincome determinants of consumption and saving.
- wealth
- expectations
- real interest rates
- household debt
The Interest Rate - Investment Relationship
- Expected rate of return.
- The real interest rate.
- Investment demand curve.
- Shifts of the investment demand curve.
- Acquisition, maintenance and operating costs
- business taxes
- technological change
- stock of capital goods on hand
- expectations
The Multiplier Effect
- Explanation
- Rationale
- The multiplier and marginal propensities.
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