10. FIGURE 24-1 The Circular Flow of Expenditures and Income 1 3 6 5 4 2 Investors Government Consumers Financial System Saving ( S ) Consumption (C) Investment (I) C + I Government C + I + G Imports ( IM ) Exports ( X ) C + I + G + Transfers Disposable Income ( DI ) Taxes ( X – IM ) Purchases ( G ) Firms (produce the domestic product) Rest of the World Gross National Income ( Y )
11.
12.
13. FIGURE 24-1 The Circular Flow of Expenditures and Income 1 3 6 5 4 2 Investors Government Consumers Financial System Saving ( S ) Consumption (C) Investment (I) C + I Government C + I + G Imports ( IM ) Exports ( X ) C + I + G + Transfers Disposable Income ( DI ) Taxes ( X – IM ) Purchases ( G ) Firms (produce the domestic product) Rest of the World Gross National Income ( Y )
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15.
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20. 100 5,151 Total Consumption 865 Other 816 Medical Care 205 Transportation 310 Household operation 779 Housing 58 2,974 Services 375 Other 133 Energy 264 Clothing & Apparel 772 Food 30 1,545 Nondurable Goods 125 Other 254 Household Equipment 253 Motor Vehicles 12 632 Durable Goods Percent of total Value of category (1996, $, billion) Category of Consumption
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24. Consumption, Saving, and Income 28,360 +1,640 30,000 27,830 +1,170 29,000 27,240 +760 28,000 26,600 +400 27,000 25,850 +150 26,000 25,000 0 25,000 24,110 -110 24,000 (3) Consumption ($) (2) Net saving (+) or dissaving (-) ($) (1) Disposable Income ($)
41. A Consumption Function Derived from the Equation C = 100 + .75 Y 850 1,000 700 800 550 600 400 400 250 200 175 100 160 80 100 0 AGGREGATE CONSUMPTION, C (BILLIONS OF DOLLARS) AGGREGATE INCOME, Y (BILLIONS OF DOLLARS)
42.
43. Marginal Propensity to Consume: Again MPC = Change in Consumption _____________________________________________ Change in DI that produces the change in Consumption
44. An Aggregate Consumption Function Derived from the Equation C = 100 + .75 Y 850 1,000 700 800 550 600 400 400 250 200 175 100 160 80 100 0 AGGREGATE CONSUMPTION, C (BILLIONS OF DOLLARS) AGGREGATE INCOME, Y (BILLIONS OF DOLLARS)
45. Marginal Propensity to Consume MPC = Change in Consumption _____________________________________________ Change in DI that produces the change in Consumption MPC = $75 _____ $100 = 0.75
46.
47. .80 .85 .90 .95 1.0 Canada United States Netherlands United Kingdom Germany Italy Japan France GLOBAL PERSPECTIVE Average Propensities to Consume, Selected Nations, 1999 Statistical Abstract of the United States, 2000 .986 .976 .972 .940 .907 .873 .869 .842
69. Year 2000 – US Trade with China By 1-digit SITC commodity In millions of dollars Source: US Census Bureau 1-digit SITC Commodity Exports Imports (0) Food and Live Animals 472.95 1,021.17 (1) Beverages and Tobacco 4.93 32.53 (2) Crude Materials, Inedible, Except Fuels 2,566.50 614.03 (3) Mineral Fuels, Lubricants and Related Materials 59.77 729.76 (4) Animal and Vegetable Oils, Fats and Waxes 20.90 7.48 (5) Chemicals and Related Products, N.E.S. 2,325.37 1,809.46 (6) Manufactured Goods Classified Chiefly by Material 1,271.89 10,286.90 (7) Machinery and Transport Equipment 8,067.82 34,946.75 (8) Miscellaneous Manufactured Articles 1,240.14 49,475.39 (9) Commodities and Transactions, N.E.S. 222.76 1,139.49 Total 16,253.03 100,062.96