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Marginal propensity to consume is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. If someone gets extra income $\\\$1000$ and consumes $\\\$750$ of this additional income their marginal propensity to consume is 0.75. The marginal propensity to consume is higher for poor ...


14

Suppose a poor person finds \$100 on the floor and a rich person also finds \$100 on the floor. The poor person will probably spend more of that \$100 than the rich person. We say then that the poor person has a higher (marginal) propensity to spend. (The above idea is mentioned in most introductory economics courses and textbooks, so while it may or may not ...


11

Have you ever heard of 'living paycheck to paycheck'? It's another way of saying the person spends all the money they take in. How many millionaires live paycheck to paycheck? How many poor people? The obvious answer is that it will be much more common the lower your income is. At the extreme case, if your income is just dollars per day you will be ...


7

This is about the ratio of spending to saving. It does not mean that low-income earners spend more money than high-income earners. It means that low-income earners spend, as opposed to save, a greater proportion of their earnings. Broadly generalising, the reason for this is straightforward: if the bill for a person's rent, food, and other basic expenditure ...


6

It's expensive to be poor. Not being able to meaningfully save money for a big purchase means that you lose the potential financial benefits that big purchase might have given you. This is (humorously) illustrated by Terry Pratchett's fictional character Sam Vimes, in the book Men At Arms: The reason that the rich were so rich, Vimes reasoned, was because ...


5

What I don't see here is an economic model, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally rudimentary): Consider a work of digitized and mass-commercialized content $x$, like a song, a movie, or a book. Assume that in the short run, demand (desire) for it is ...


4

I am unsure whether this qualifies as economics, but it would be something that might be discussed in business school. Furthermore, the answer is almost entirely engineering. As such, I will do this briefly. Those “old” factories are probably in the same physical space as their current factories. They would need to build new facilities. They would need ...


4

This left me wondering what happens to the wider economy when people decide en masse rather than spending their disposable income on consumer goods/services, to instead pay down their debt and save/invest? tl;dr: Answer depends on the situation/time horizon you are talking about. In long run increasing saving and investment will have no negative impact on ...


3

The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases production and production increases income. However, as an echo in a cave the initial increase in income gets 'weaker' as it cycles through the economy and the result 1/...


2

The above answer by Regio covers most of the answer Just to emphasize further : Consider a 2 goods case. We define MRS as the opportunity cost of consuming one more unit of good 1. Opportunity cost means "What Am I Giving Up ?". Since you are consuming only two goods, you are giving up some amount of good 2 in order to consume this one more unit of good 1. ...


2

It is implicit in the interpretation: Mas-Collel: the amount that must be given (+) to compensate for a reduction (-). Reny: The rate at which good j can be exchanged (+ & -) for good i. The derivation from total differentiation only requires the utility to be constant, so the derivative must be negative to express that if the quantity of good $i$...


2

I will only address e-books (and other text), and discuss the technical issues. These technical issues make e-books distinct from other electronic media. An e-book is a compressed file that contains what are essentially web pages (each a “chapter”), with meta-data in XML. Typical size is small (a couple megabytes), with size possibly increasing due to images ...


2

Hint: Suppose the price of the goods is $P$ so that $N=100/P$ goods can be afforded in total. Now consider which of the following yields more utility: a) $x=y=z=N/3$. b) $x=z=N/4$ and $y=N/2$.


2

Let $\min\{x,z\}=\Omega$, where $P_\Omega=P_x+P_z$. Now the problem becomes $U(y,\Omega)=y\Omega$, which is a standard Cobb-Douglas with degree 2 of homogeneity. Now in this case the choice for each good is: $y^*=\frac{\alpha_y100}{P_y(\alpha_y+\alpha_\Omega)}\implies y^*=\frac{100}{2P_y}\;\;\;\;\;\;\;$in this case $\alpha_y=\alpha_\Omega=1$ For $\Omega$: $\;...


1

No under expenditure approach neither salary or wages are directly counted. An expenditure approach to GDP calculates GDP as follows: $$GDP=C+I+G+NX$$ Where $C$ is consumer spending on final goods and services at market prices, $I$ is the investment spending, $G$ is government spending and $NX$ are net exports. All wages and salaries are of course indirectly ...


1

Try to connect to your personal experience or to that of people you know regarding living expenses and relevant fees. If you or your peers are earning-relatively-low income then it’s highly likely that the better part of that -relatively-small amount is spent rather than saved. Another way to state that fact is by saying that you or your peers or people at ...


1

I have not seen this in any textbook of mine, but here's my attempt: Since the utility function (1) is the product of the quantity of y and the minimum quantity of either x or z (so, $min \{x,z\}$ is a singular value, say 15 units or 27 units, etc.) and (2) $x=z$ for every value of x or z, the utility function turns into: $U(y, x=z)=yx$, or $U(y, z=x)=yz$ ...


1

I would recommend you read Kroencke (2017). That paper dismantles the problem in a lot of prior (flawed) consumption-based asset pricing research as well as explaining some findings for what were seemingly better proxies. It is a fantastic bit of work and likely not yet in some of the texts you might encounter.


1

But I don't believe that the plot will shift like this in response to such bad news, it seems to contradict what I learned about microeconomic autonomous spending (I believe that the same must be true for aggregate autonomous spending). It's spending that you just WON'T reduce, they are too critical. You will tap into your savings, you will borrow or ask for ...


1

“I” would be called private domestic investment. (https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey) Firm and household expenditures for investment both count as private investment. (https://courses.lumenlearning.com/boundless-economics/chapter/measuring-output-using-gdp/) Any investment ...


1

You are correct in stating that if MPS increases, then MPC decreases. But the question doesn't actually say that MPS increases. What it says is that saving increases at each level of income. That's consistent with a scenario such as the following in which MPS does not change while autonomous consumption falls from $10$ to $5$: $\qquad$Before: $S = -10 + 0....


1

Intermediate consumption total intermediate consumption is the difference between gross output (sales or receipts, which can include sales to final users in the economy or sales to other industries (intermediate inputs) and Value added GDP (total market value of all final goods and services produced). This difference would be called intermediate inputs ...


1

The ideas are very similar and functionally virtually equivalent although there arguably is subtle difference. For example, Romer in his Advanced Macroeconomics, which is widely used intermediate macroeconomics handbook, calls both the life cycle hypothesis and permanent-income hypothesis just permanent income hypothesis. To be more specific he says Thus ...


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