The national income accounts for many factors that typically include the savings within a household, investments, and the equilibrium GDP with each category being self-explanatory like households saving money for later or near future, and investments from businesses, by spending money towards other businesses which could increase payment to households and then increase GDP. As for equilibrium GDP, all it is, is the GDP being stable if savings is equal to the investment. If there is any sot of imbalance between savings and investment, GDP will either increase or decrease substantially.
Investments can come from many places and sources that include:
- Income from sales
- Borrow from bank or institute
- Issue shares
- Foreign investors
All of these examples brings money into the government or company and allows them to invest into whatever is needed.
We also talked about the Paradox of Thrift which essentially was talking about that if there was an increase in the savings within the economy, that would lead to lower levels of income and therefore lover levels of savings over time. A guy by the name of John Maynard Keynes said that a consumer spending contributes to the collective good because one person's spending is another person's income. I found that this makes total sense because if companies are trying to save more money then they won't be willing to pay their workers as higher wages which in return, workers won't have enough pocket money to just put into savings later on. Also, when a person is spending their money more, its giving companies money to provide jobs and give other people an income.
Lastly, we talked about The Consumption Schedule which explained the APC (average propensity to consume), APS (average propensity to save), MPC (marginal propensity to consume), and MPS (marginal propensity to save). It is a table of numbers that shows the relation between consumption expenditures and income for a household sector. The purpose of this is to summarize the consumption-income relation within a household.
- APC = the ratio of consumption to income.
- APS = ratio of savings to disposable income.
- MPC = proportion of increase indisposable income that is used for consumption.
- MPS = changes in the level of savings compared to the changed in level of disposable income.
With these four different equations, you can calculate the different consumption schedules and come to the conclusion between the consumption and income and whether it is sufficient.
Works Cited
"AmosWEB Is Economics: Encyclonomic WEB*pedia." AmosWEB Is Economics: Encyclonomic WEB*pedia. N.p., n.d. Web. 04 Mar. 2015.
"Gross Domestic Product." Wikipedia. Wikimedia Foundation, n.d. Web. 04 Mar. 2015.
"Paradox Of Thrift Definition | Investopedia." Investopedia. N.p., 25 June 2010. Web. 01 Mar. 2015.
