Prin Econ

NATIONAL INCOME AND PRODUCT ACCOUNTS CONSUMPTION

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is the amount of money spent on goods and services which yield direct satisfaction. The part  of income that is not consumed is saving.

CONSUMPTION FUNCTION

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is a functional relationship between income and consumption.

SAVING FUNCTION

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is considered as the mirror image of the consumption function.

Consumption may be categorized in to the following: Durable goods Nondurable goods Services

 AVERAGE PROPENSITY TO CONSUME CONSUME (APC)

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Refers to the proportion of income devoted to consumption.

 AVERAGE PROPENSITY TO SAVE SAVE (APS)

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is the proportion of income (of an individual or the whole economy) which is not spent on consumption of goods and services.

DETERMINANTS OF CONSUMPTION Wealth Price level Goods and Services

Consumer Expectation Interest Rate

Export Business Firms

Households

THE SAVINGS FLOW

Investment

Financial Intermediaries

Saving

SAVING AND INVESTMENT 1. SAVINGS - Contribute to the economy if these are placed in banks and other financial institutions. They become funds for investments. 2. INVESTMENT - Expands the economy. SOURCES AND USES OF INVESTMENT FUNDS

Private Person Business Firms Government

Savin s

Construction

Financial Institutions/ Foreign Countries

Investment Funds

Borrowin

Machinery And Equipment

Public Works

INVESTMENT, POTENTIAL OUTPUT AND ECONOMIC GROWTH

New buildings New equipment Manpower training

Investment Spending

Higher level of  employment of  resources

Increased capacity of  Business firms

Bigger potential output and aggregate supply

MULTIPLIER EFFECT An increase in investments generally gives rise to an increase in inc ome, a number of times larger than the original investments. The ratio of a change in income to a change in investments is called the multiplier. PARADOX OF THRIFT The attempt of the consumers to save more will reduce saving.

BUSINESS CYCLE UNEMPLOYMENT AND INFLATION Fujiko M. Yonaha

FOUR PHASES OF BUSINESS CYCLE Prosperity Phase: Recession Phase: Depression Phase: Recovery Phase:

Expansion or Boom or Upswing of economy. From prosperity to recession (upper turning point). Downswing of economy. F rom depression to prosperity (lower turning Point).

CAUSES OF BUSINESS CYCLE Sunspot Theory Innovation Theory Self Generating Theory UNEMPLOYMENT Two types of unemployment: 1. Unavoidable unemployment  Frictional Unemployment  Structural unemployment  Cyclical Unemployment   2. Avoidable Unemployment  FULL EMPLOYMENT -

referred to as the natural rate of unemployment 

UNDEREMPLOYMENT -

refers to an employment situation that is insufficient in some important way for the worker, relative to a standard.

INFLATION -

refers to a “rise in the average level of prices.”  INFLATION =

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CAUSES OF INFLATION cost-push inflation Demand –pull inflation Inertial inflation

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DEFLATION Is a sustained decrease in the average price level. This is in sharp contrast to inflation. HYPERINFLATION Refers to a period of extremely high inflation reaching 100,000 % and above. LOSERS AND GAINERS IN INFLATION 1. Losers Fixed income earners Pensioners Creditor 2. Gainers Businessmen Speculators Debtors TWO METHODS USED IN CONTROLLING INFLATION: Monetary policy Fiscal Policy