2/23/2017

Consumption and Savings 
Disposable Income (DI)
Income after taxes or net income
DI = Gross Income - Taxes
2 Choices with Disposable income, household can either
-Consume (Spend Money on goods and Services)
-Save ( not spend money on goods and services)

Consumption
Household Spending is the ability to consume is constrained by the amount of disposable income
- the propensity to save
Do households if DI equals 0?
-Autonomous Consumption
-Dis saving

APC = C/DI = % DI that is spent 

Average saving 
Household not spending
The ability to save is constrained by the amount of disposable income
The propensity to consume

Do household save if DI = 0
No
APS = S/DI = % THAT IS  NOT SPENT

APC AND APS
APC + APS = 1
1- APC = APS
1- APS = APC
APC > 1 DISSAVING

MPC AND MPS
Marginal Propensity to consume
Change in C/ Change in DI
% of every extra dollar demand that is spent

Marginal Propensity to save
Change in S/Change in DI
% of every extra dollar earned that is saved
MPC +MPS = 1
1 - MPS = MPC
1 - MPC = MPS

Determinants
-wealth
-exception
-household debt
-Taxes