Keynes identified three factors that affect consumption:
Disposable income: For most people, the single most powerful determinant of how much they consume is how much income they have in their take-home pay, also known as
disposable income , which is income after taxes.
Expected future income: Consumer expectations about future income also are important in determining consumption. If consumers feel optimistic about the future, they are more likely to spend and increase overall aggregate demand. News of recession and troubles in the economy will make them pull back on consumption.
Wealth or credit: When households experience a rise in wealth, they may be willing to consume a higher share of their income and to save less. When the U.S. stock market rose dramatically in the late 1990s, for example, U.S. rates of saving declined, probably in part because people felt that their wealth had increased and there was less need to save. How do people spend beyond their income, when they perceive their wealth increasing? The answer is borrowing. On the other side, when the U.S. stock market declined about 40% from March 2008 to March 2009, people felt far greater uncertainty about their economic future, so rates of saving increased while consumption declined.
Finally, Keynes noted that a variety of other factors combine to determine how much people save and spend. If household preferences about saving shift in a way that encourages consumption rather than saving, then AD will shift out to the right.
Visit this
website for more information about how the recession affected various groups of people.
What determines investment expenditure?
Spending on new capital goods is called
investment expenditure . Investment falls into four categories: producer’s durable equipment and software, new nonresidential structures (such as factories, offices, and retail locations), changes in inventories, and residential structures (such as single-family homes, townhouses, and apartment buildings). The first three types of investment are conducted by businesses, while the last is conducted by households.
Keynes’s treatment of investment focuses on the key role of expectations about the future in influencing business decisions. When a business decides to make an investment in physical assets, like plants or equipment, or in intangible assets, like skills or a research and development project, that firm considers both the expected benefits of the investment (expectations of future profits) and the costs of the investment (interest rates).
Expectations of future profits: The clearest driver of the benefits of an investment is expectations for future profits. When an economy is expected to grow, businesses perceive a growing market for their products. Their higher degree of business confidence will encourage new investment. For example, in the second half of the 1990s, U.S. investment levels surged from 18% of GDP in 1994 to 21% in 2000. However, when a recession started in 2001, U.S. investment levels quickly sank back to 18% of GDP by 2002.
Interest rates also play a significant role in determining how much investment a firm will make. Just as individuals need to borrow money to purchase homes, so businesses need financing when they purchase big ticket items. The cost of investment thus includes the
interest rate . Even if the firm has the funds, the interest rate measures the opportunity cost of purchasing business capital. Lower interest rates stimulate investment spending and higher interest rates reduce it.
Wayne and Dennis like to ride the bike path from Riverside Park to the beach. Dennis’s speed is seven miles per hour faster than Wayne’s speed, so it takes Wayne 2 hours to ride to the beach while it takes Dennis 1.5 hours for the ride. Find the speed of both bikers.
from theory: distance [miles] = speed [mph] × time [hours]
info #1
speed_Dennis × 1.5 = speed_Wayne × 2
=> speed_Wayne = 0.75 × speed_Dennis (i)
info #2
speed_Dennis = speed_Wayne + 7 [mph] (ii)
use (i) in (ii) => [...]
speed_Dennis = 28 mph
speed_Wayne = 21 mph
George
Let W be Wayne's speed in miles per hour and D be Dennis's speed in miles per hour. We know that W + 7 = D and W * 2 = D * 1.5.
Substituting the first equation into the second:
W * 2 = (W + 7) * 1.5
W * 2 = W * 1.5 + 7 * 1.5
0.5 * W = 7 * 1.5
W = 7 * 3 or 21
W is 21
D = W + 7
D = 21 + 7
D = 28
Salma
Devon is 32 32 years older than his son, Milan. The sum of both their ages is 54 54. Using the variables d d and m m to represent the ages of Devon and Milan, respectively, write a system of equations to describe this situation. Enter the equations below, separated by a comma.
please why is it that the 0is in the place of ten thousand
Grace
Send the example to me here and let me see
Stephen
A meditation garden is in the shape of a right triangle, with one leg 7 feet. The length of the hypotenuse is one more than the length of one of the other legs. Find the lengths of the hypotenuse and the other leg
however, may I ask you some questions about Algarba?
Amoon
hi
Enock
what the last part of the problem mean?
Roger
The Jones family took a 15 mile canoe ride down the Indian River in three hours. After lunch, the return trip back up the river took five hours. Find the rate, in mph, of the canoe in still water and the rate of the current.
Shakir works at a computer store. His weekly pay will be either a fixed amount, $925, or $500 plus 12% of his total sales. How much should his total sales be for his variable pay option to exceed the fixed amount of $925.
I'm guessing, but it's somewhere around $4335.00 I think
Lewis
12% of sales will need to exceed 925 - 500, or 425 to exceed fixed amount option. What amount of sales does that equal? 425 ÷ (12÷100) = 3541.67. So the answer is sales greater than 3541.67.
Check:
Sales = 3542
Commission 12%=425.04
Pay = 500 + 425.04 = 925.04.
925.04 > 925.00
Munster
difference between rational and irrational numbers
Jazmine trained for 3 hours on Saturday. She ran 8 miles and then biked 24 miles. Her biking speed is 4 mph faster than her running speed. What is her running speed?