Consumption Function, Autonomous Consumption, And Marginal...

1. Explain and give examples of the Consumption Function, Autonomous Consumption, and Marginal Propensity to Consume. †¢ Consumption Function – The relationship between consumption spending and the level of income o C = Ca + by o Example: Income, wealth, interest rates, age, education, and family size are all part of spending, depending on your level of income. o The life-cycle theory assumes that household members choose their current expenditures optimally, taking account of their spending needs and future income over the remainder of their lifetime. †¢ Autonomous Consumption – The part of consumption that does not depend on income o Example: Electricity, food and costs related to housing, because these expenses are still there even if†¦show more content†¦Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership. Private investments, due to the nature of these investment companies, their member investors generally have significant personal wealth and are considered sophisticated enough to not require the same level of regulatory protection accorded to small investors by law. This designation provides added flexibility for private investment funds. (may be better off people) †¢ The correlation is that they are both part of investing money just depends on what you want to invest your money into if it will be just part of the stock market or part of a private investment. 3. During drops and run-up in the stock market some people have compared investing to gambling, saying it is no better than flipping a coin or playing a number on a roulette wheel. How is investing like and how is it different from gambling? †¢ Investing is like gambling because they both involve risk and choice. The gambler and the investor both have to decide how much they want to risk. Both are trying to minimize risk while maximizing profits. Stock investors and gamblers look for an edge in order to help enhance their performance. They both study behavior in some form or another. When gambling, people look for cues or try and gainShow MoreRelatedMacroeconomics and Equilibrium Level1394 Words   |  6 Pagesï » ¿PROBLEM SET 3 Problems for Chapter 3 1. Suppose the consumption function in the U.S. is represented by the following equation: C = 200 + .5 YD, where YD = Y – T and T = 200. a. What is the level of consumption in this economy if YD = 0? Briefly explain how individuals â€Å"pay for† this consumption when YD = 0. b. Given the above parameters, calculate the level of consumption if Y = 1200. Suppose Y increases to 1300. What happens to the level of YD as Y increases to 1300 (i.e. calculateRead MoreEconomics1000 Words   |  4 PagesAssume a consumption function that takes on the following algebraic form: C = $100 + .8Y. 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