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1.1 Briefly define the following terms and explain the relationship between MPC and MPS and
the relationship between aggregate output and aggregate income.
1. MPC
2. MPS
3. Aggregate Output
4. Aggregate Income
1. MPC
The marginal propensity to consume (MPC) is the proportion of an aggregate
raise in pay that a consumer spends on the consumption of goods and
services, as opposed to saving it.
2. MPS
The marginal propensity to save (MPS) is the fraction of an increase in
income that is not spent on an increase in consumption. That is, the marginal
propensity to save is the proportion of each additional dollar of household
income that is used for saving. It is the slope of the line plotting saving against
income.
3. Aggregate Output
The sum of all the goods and services produced in an economy over a certain
period of time. In other words, aggregate output is defined as an economy's
total productivity, or GDP.
4. Aggregate Income
Aggregate income is the total of all incomes in an economy without
adjustments for inflation, taxation, or types of double counting. Aggregate
income is a form of GDP that is equal to Consumption expenditure plus net
profits.
3.1
When interest rates rise, consumers with debts are going to have to pay more interest to
lenders. This typically has a negative effect on their spending habits because the more
money they have to pay to keep their loans current, the less disposable income they will
have to spend on products and services. If you own a business that deals in luxury
products or services, you may be hit harder by a rise in interests rates than a company
providing basic staples, because luxury items are usually the first thing consumers
eliminate when they have less disposable income.
Therefore the economy is likely to experience falls in consumption and
investment.
When interest rates are high, investment becomes more expensive. As money
becomes more expensive to borrow, businesses, governments and individuals
start slowing their investment plans.
1.5
Bitcoin is a form of digital “currency”. It is created and held
electronically on a computer. Bitcoins are not paper money like
dollars, euro or yen by central banks or monetary authorities. Through
the years, there is obvious contra about bitcoin as money. For me,
bitcoin is not money because it doesn’t fulfill the qualification of
money. Here are the reasons.
Money must be a medium of exchange.
A private medium of exchange that is not accepted universally and lacks stability cannot be
considered money.
That is why bitcoin is not money.
In this sense, bitcoin, acting like virtual cash, can perform functions similar to
currencies' as a medium of exchange.
In case you haven't noticed, Bitcoin prices swing back and forth in
a way that makes an Alpine landscape look flat. So far, Bitcoin has
not shown itself to be a stable store of value.