Consumption & Saving
Consumption & Saving
Disposable Income (DI)
can be broken down into consumption & savings
DI= Gross Domestic Income - Taxes
consume or save
both cannot be done equally
Consumption
what can you spend money on?
-household spending
do households consume is DI=0 ?
-autonomous consumption; dis-saving
Savings
household not spending
ability to save is constrained by:
-amount of DI
-propensity to consume
do households save if DI is 0?
no
APC & APS
MPC & MPS
Marginal propensity to consume = Change in Consumption / Change in DI
% of every extra dollar that is saved
MPS = change in Savings / change in DI
MPC + MPS = 1
1 - MPC = MPS
1 - MPS = MPC
Also, remember that to solve APC AND APS. We can use APC + APS =1, which means APS = 1 - APC and APC= 1 - APS.
ReplyDeleteAs Boluwatife mentioned don't forget the equations as well as what APC and APS stand for. Which are Average Propensity to Consume (APC) and Average Propensity to Save (APS). APC refers to any given level of real income, the proportion of total real disposable income that is consumed. While APS refers to the ratio of saving to the corresponding level of saving income.
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