Consumption and Saving (2/23)

Consumption and Saving (2/23)

• Consumption(C)

• household spending
• the ability to consume is constrained by
• the amount of disposable income (DI)
• the propensity to save
• Do households consume if DI = 0; yes, (Credit), Dissaving

• Savings(S)

• household not spending
• constrained by:
• amount of DI
• propensity to consume
• Do households save if DI = 0; no

• Disposable Income(DI)

• income after taxes or net income
• DI = Gross Income - Taxes

• Calculations

• APC - Avg Propensity to Consume
• APS - Avg Propensity to Save
• MPC - Marginal Propensity to Consume
• MPS - Marginal Propensity to Consume (% of every extra $ earned that is saved)
• C/DI = APC ; S/DI = APS
• APC + APS = 1
• APC > 1 Dissaving
• - APS = Dissaving
• ΔC/ΔDI = MPC
• ΔS/ΔDI = MPS
• MPC + MPS = 1

• Determinants of C & S

• Wealth
• Expectations
• Household Debt
• Taxes