Answer to Question #212661 in Macroeconomics for TAHA

Question

1. Compare the following concepts as they relate to Macroeconomic consumption and savings: I. Autonomous Consumption and Induced Consumption II. MPC and MPS III. Linear MPC and Non-Linear MPC IV. Saving and Dis-saving V. Permanent Income and Transitory Income VI. Liquidity constraints and Buffer Stocks

Answer 1

Autonomous Consumption and Induced Consumption

Autonomous Consumption refers to expenditure that must be incurred even at zero Income, while Induced Consumption refers to spending that varies with the available disposable income.

 MPC and MPS 

Marginal propensity to consume refers to household income that is spent, while marginal propensity to consume refers to household income set aside for future use.

 Linear MPC and Non-Linear MPC

In linear marginal propensity to consume expenditure remains constant at all levels of Income, while in the nonlinear marginal propensity to consume, the expenditure declines with an increase in Income.

 Saving and Dis-saving 

Saving refers to current Income set aside for future use, while dissaving refers to expenditure beyond available Income.

 Permanent Income and Transitory Income

Permanent Income is the average flow of Income that one expects to get for Consumption. In contrast, transitory Income is the difference between the current Income and permanent Income and is saved for future use.

  Liquidity constraints and Buffer Stocks

Liquidity constraints refer to restriction in the capital market that limits amount individual can borrow for Consumption while buffer Stocks refer to savings reserved to offset price fluctuations.