Some Limitations of GDP or GNI as measures of growth Some consumption is autonomous (= independent of DPI):

Ignores income distribution it may depend on other factors such as wealth or stock
Ignores environmental degradation values.
Does not include activities that do not go through the Marginal Propensity to Consume
formal markets sectors The proportion, or fraction, of any change in income
Does not include "illegal" activities like drug trafficking, consumed is called the marginal propensity to consume
prostitution and etc. (MPC). The MPC is the ratio of a change in consumption to a
change in the income that caused the consumption change.
How much of every additional dollar in income is consumed?
MPC = change in consumption
change in income

The Consumption Function: the key to Keynes

Consumption depends on the level of DISPOSABLE
INCOME
disposable personal income = income - taxes = Y - T
The consumption function proposed by Keynes is:
C = C0 + Cy ( Y - T)
C = C0 + Cy ( DPI)
C0 = Autonomous consumption
Cy = Marginal propensity to consume
 516898800, 2318500>M+
n=1
3. C = C0 + MPC ( DPI)
Personal Disposable C0 = shift>s-var>A C0 = -4917375.651
Year Income Consumption MPC = shift>s-var>B MPC= 0.013996423
2008 516,898,800 2,318,500 Source: www.youtube.com/watch?v=YIpgqOpQUHY
2009 483,147,400 1,855,700
2010 494,509,100 2,001,700
2011 484,457,600 1,853,700
Source:www.oecd.org
Japans Data in National Currency
(Current Prices in Millions)

Using the given information above, if Disposable

income for 2012 will reach to 564,658,880 Yen how
much will go to consumption?

Deriving Consumption Function using Regression:

1. Shift CLR>All
2. Mode > Reg>Lin
3. Plug-in Data