CHAPTER 18 EXHIBIT 2 The Consumption Function C

CHAPTER 18 EXHIBIT 2 The Consumption Function C = Yd 8 C 7 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 6 Real consumption (trillions of dollars per year) 5 DC = $1. 5 trillion Break-even income 4 DYd = $2. 0 trillion 3 2 1 45º 0 1 2 3 4 5 6 Real disposable income (trillions of dollars per year) 7 8

CHAPTER 18 EXHIBIT 4 Consumption Functions for Two Marginal Propensities to Consume C = Yd 8 C 2 7 MPC =. 75 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 6 Real consumption (trillions of dollars per year) 5 C 1 4 MPC =. 50 3 2 1 45º 0 1 2 3 4 5 6 7 8 Real disposable income (trillions of dollars per year) CAUSATION CHAIN MPC changes from 0. 50 to 0. 75 Consumption function shifts from C 1 to C 2 People spend more at all levels of real disposable income

CHAPTER EXHIBIT 5 U. S. Personal Consumption and Disposable Income, 1933– 2000 18 C = Yd 6. 5 2000 6. 0 5. 5 5. 0 1990 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 4. 5 4. 0 Real personal consumption 3. 5 and saving (trillions of 1992 dollars) 3. 0 1980 2. 5 1970 2. 0 1. 5 Saving Dissaving 1. 0 1960 1950 . 5 1933 0 1940 1935. 5 1. 0 1. 5 2. 0 2. 5 3. 0 3. 5 4. 0 4. 5 Real disposable income (trillions of 1992 dollars) 5. 0 5. 5 6. 0 6. 5

CHAPTER 18 EXHIBIT 6 Movement along and Shifts in the Consumption Function C = Yd 8 7 C 2 = a 2 + b. Yd 6 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing Real consumption (trillions of dollars per year) C 1 = a 1 + b. Yd 5 B 4 A 3 a 2 2 a 1 1 45° 0 1 2 3 4 5 6 7 8 Real disposable income (trillions of dollars per year) CAUSATION CHAIN Increase in real disposable income Change in nonincome determinant increases autonomous consumption measured by points a 1 and a 2 Movement along the consumption function Upward shift in the consumption function from C 1 to C 2

CHAPTER EXHIBIT 7 A Comparison of the Volatility of Real Investment and Real Consumption, 1960– 2000 18 25 Real personal consumption Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 20 Annual growth rate (percent) 15 10 5 0 – 5 – 10 Real investment – 15 1960 1965 1970 1975 1980 Year 1985 1990 1995 2000

CHAPTER EXHIBIT 8 Movement along and a Shift in a Firm’s Investment Demand 18 (b) Shift in the firm’s investment demand curve (a) Movement along the firm’s investment demand curve 16 16 A 12 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing Interest rate (percent) 12 Interest rate (percent) B 8 4 C 8 B 4 I 1 Investment demand curve 0 5 10 15 20 Real investment (millions of dollars per year) CAUSATION CHAIN Decrease in interest rate Change in expectations, technology, capacity, business taxes Increase in firm’s investment spending Increase in firm’s investment demand curve from I 1 to I 2

CHAPTER EXHIBIT 9 The Aggregate Investment Demand Autonomous Investment Demand Curves 18 (b) Aggregate autonomous investment curve Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing (a) Aggregate investment demand curve Interest rate (percent) 16 1. 6 14 1. 4 12 1. 2 Real investment 1. 0 expenditures (trillions of. 8 dollars per. 6 year) 10 A 8 6 4 Autonomous investment 2 0 . 2 . 4 . 6 . 8 I Autonomous investment . 4 I 1. 0 1. 2 1. 4 1. 6 Real investment (trillions of dollars per year) . 2 0 1 2 3 4 5 6 7 Real disposable income (trillions of dollars per year) 8

CHAPTER 18 EXHIBIT 10 Aggregate Expenditures Function Data 8 7 AE E 6 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing Real consumption and investment expenditures (trillions of dollars per year) C 5 4 3 I 2 1 45 0 1 2 3 4 5 6 7 8 Real disposable income (trillions of dollars per year) (1) Real disposable income (Yd ) (2) (3) (4) Consumption (C ) Investment (I ) Aggregate expenditures (AE ) [(C + I ) or (2) + (3)] $0 1 2 3 $2. 0 2. 5 3. 0 3. 5 $1 1 $3. 0 3. 5 4. 0 4. 5 4 5 6 7 8 4. 0 4. 5 5. 0 5. 5 6. 0 1 1 1 5. 0 5. 5 6. 0 6. 5 7. 0 Note: All amounts are in trillions of dollars per year.

CHAPTER 18 EXHIBIT 11 Aggregate Expenditures Function 10 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 9 Real consumption and investment expenditures (trillions of dollars per year) 8 AE 7 C E 6 5 4 3 2 1 45 o 0 1 2 3 4 5 6 7 8 9 10 11 Real disposable income (trillions of dollars per year)