Explain how consumption and saving are related to disposable income in the aggregate expenditures model.
What will be an ideal response?
Consumption and saving are directly related to disposable income in the aggregate expenditures model. Consumption is positively related to disposable income, but is a proportionally greater part of low income than of high income. In fact, at very low income levels it is probable that consumption exceeds income.
Since saving is income not spent, it is also directly related to income and will be an increasing proportion of income as income rises. At very low levels of income when consumption exceeds income, saving will be negative or dis saving occurs.
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There are several reasons why incomes are unequal, including differences in luck, experience, and schooling
a. True b. False Indicate whether the statement is true or false
Assume that business investment spending rises, and the increase is funded by greater borrowing in the capital markets. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real GDP and the nominal value of the domestic currency in the context of the Three-Sector-Model? a. Real GDP rises and nominal value of the domestic currency
falls. b. Real GDP falls and nominal value of the domestic currency remains the same. c. Real GDP rises and nominal value of the domestic currency remains the same. d. Real GDP rises and nominal value of the domestic currency rises. e. There is not enough information to determine what happens to these two macroeconomic variables.