Consumption Savings

Disposable Income (DI)
-income after taxes/net income
-DI=Gross Income-Taxes

2 Choices:
-w/ DI, households can either

1. consume (spend $ on goods and services)
2. save (not spend)

Consumption

-household spending

-ability to consume is constrained by

• amount of DI
• propensity (tendency) to save

-Do households consume if DI=0? No.

• autonomous consumption
• dissaving

Saving

-household NOT spending

ability to save constrained by

• amount of DI
• propensity to consume

-Do households save if DI=0? No.

APC (average propensity to consume) + APS (average propensity to save)

• APC+APS=1
• 1-APC=APS
• 1-APS=APC
• APC>1: Dissaving
• (-)APS: Dissaver (don't save)

MPC+MPS

-Marginal Propensity to Consume (MPC)

• △C/△DI
• % of every extra dollar earned that's spent

-Marginal Propensity to Save (MPS)

• △S/△DI
• % every dollar earned spent

-MPC+MPS=1

-1-MPC=MPS

-1-MPS=MPC

Determinants of C+S

• wealth 
• expectations
• household debt
• taxes

Graphs of Consumption + Savings: