Macroeconomics: Unit 30

Income-Consumption Relationship

A relationship in macroeconomics where households' consumption is primarily determined by their disposable income.

Disposable Income (DI)

The amount of money that households have available for spending and saving after income taxes have been deducted.

Consumption Schedule

A graph showing the relationship between disposable income and consumption expenditure.

Saving Schedule

A graph showing how much households plan to save at different levels of disposable income.

Dissaving

When households consume more than their after-tax income, typically occurring at low disposable income levels.

Break-Even Income

The income level at which households plan to consume their entire income.

Wealth Effect

A phenomenon where an increase in the value of household wealth leads to increased consumption and decreased savings.

Reverse Wealth Effect

A situation where a decrease in the value of household wealth leads to decreased consumption and increased savings.

Real Interest Rates

The interest rates adjusted for inflation, affecting investment decisions.

Investment Demand Curve

A graphical representation of the relationship between the expected rate of return on investments and the quantity of investment demanded.

Multiplier Effect

The concept that an initial change in spending (investment) can lead to a larger change in GDP.

Marginal Propensity to Consume (MPC)

The fraction of additional income that a household consumes rather than saves.

Non-income Determinants of Consumption

Factors other than income that influence household consumption and saving behaviors, such as wealth and expectations.

Volatility of Investment

The frequent and significant fluctuations in investment levels, impacted by expectations, profits, and innovations.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen, particularly in investment decisions.