Exercises Linear equations for the consumption and saving schedule take the general form C=a+bY and S=-a+(1-b)Y, where C, S and Y are consumption. saving and national income respectively (1) Use the given data to develop specific numerical values for the consumption and saving equations. Write the using these values (2)what is the economic meaning of b? what is the economic meaning of(1-b)? 01-08-08
01-08-08 1 Exercises • Linear equations for the consumption and saving schedule take the general form C=a + bY and S=-a+(1-b)Y, where C, S and Y are consumption, saving and national income respectively. (1) Use the given data to develop specific numerical values for the consumption and saving equations. Write the using these values. (2) what is the economic meaning of b? what is the economic meaning of (1-b)?
Household disposal Consumption(C income Dn 100 90 200 170 01-08-08
01-08-08 2 Household disposal income (DI) Consumption (C) 100 90 200 170
question Briefly explain the concept of consumption function Explain how changes in net wealth and the price level alter the consumption function 01-08-08
01-08-08 3 question • Briefly explain the concept of consumption function. • Explain how changes in net wealth and the price level alter the consumption function
GDP=C+I+G+NX
GDP=C+I+G+NX
Investment Investment refers to the expenditures on new plants, capital equipments, machinery and so on 投资指对新工厂、新机器、新设备 等的支出。 01-08-08
01-08-08 5 Investment • Investment refers to the expenditures on new plants, capital equipments, machinery and so on. • 投资指对新工厂、新机器、新设备 等的支出
example Suppose the owner of a small shop is considering investing a new machine that costs S1000 and it has a useful life of a year. The expected net revenue is $1100, the net profit is $100 The expected rate of net profit顸期净利 润率is10 per cent 01-08-08
01-08-08 6 example • Suppose the owner of a small shop is considering investing a new machine that costs $1000 and it has a useful life of a year. • The expected net revenue is $1100, the net profit is $100. • The expected rate of net profit(预期净利 润率) is 10 per cent. =(1100-1000)/1000
Interest rate(利率) the financial cost(财务成本) If the interest rate is 15%and the expected rate of net profits is 10%, will it be profitable to invest? Of course not 01-08-08
01-08-08 7 • Interest rate(利率) ------ the financial cost（财务成本） • If the interest rate is 15% and the expected rate of net profits is 10%,will it be profitable to invest? • Of course not
Generalization(总结 If the expected rate of net profits exceeds the interest rate, it will be profitable to invest. (sI 果预期利润率超过利率,值得投资) But if the interest rate exceeds the expected rate of net profits, it will be unprofitable to invest.(如果利率超过预期利润率,不值得 投资) 01-08-08
01-08-08 8 Generalization (总结) • If the expected rate of net profits exceeds the interest rate, it will be profitable to invest.(如 果预期利润率超过利率，值得投资) • But if the interest rate exceeds the expected rate of net profits, it will be unprofitable to invest.（如果利率超过预期利润率，不值得 投资）
What if inflation is occurring? The expected rate of net profits=10% The nominal interest rate(名义利率) 15 the rate of inflation(通货膨胀率) 8%0 Is it profitable to invest? 01-08-08
01-08-08 9 What if inflation is occurring? • The expected rate of net profits= 10% • The nominal interest rate(名义利率) = 15% • the rate of inflation （通货膨胀率） =8% • Is it profitable to invest?
.The real interest rate= The nominal interest rate- the rate of inflation 实际利率=名义利率一通货膨胀率 01-08-08
01-08-08 10 •The real interest rate= The nominal interest rate - the rate of inflation 实际利率＝名义利率－通货膨胀率