Macro Economics
...by which consumption spending rises when disposable income rises by one dollar. Assume: 0 < mpc < 1 Vertical intercept = autonomous consumption spending: is the part of spending that is independent of income. **if wealth increase or interest rate decreases, then consumption is greater, thus the entire consumption function shifts up, vertical intercept increases. Consumption-Income lineŕshows the aggregate consumption at each level of income or GDP. *consumption is the largest component of spending, and disposable income is the most important determinant of consumption. · Taxes lower the consumption income line, because they reduce disposable income and therefore reduce consumption spending. · Any decrease in taxes (T) will cause consumption spending o fall by MPC x T · When taxes are fixed amount, disposable income rises dollar-for-dollar with income. · *when government collects fixed taxes, line will shift down by tax amount times mpc—the slope is unaffected and is equal to mpc. 1. Income increases and taxes unchanged, disposable income rises, and consumption spending rises. (movement along consumption-income line). 2. Decrease in taxes will increase disposable income at each level of income. Consumption spending increases at any income level. (entire line shifts upward). 3. Other changes besides increases/decreases in taxes shift line. These changes change autonomous consumption-the vertical intercept of consumption function. Increase in auton...