Mr gerdes ap macroeconomics
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Mr. Gerdes AP Macroeconomics. Consumption & Saving. Disposable Income (DI). Income after taxes or net income DI = Gross Income - Taxes. 2 Choices. With disposable income, households can either Consume (spend money on goods & services) Save (not spend money on goods & services).

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Mr. Gerdes AP Macroeconomics

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Mr gerdes ap macroeconomics

Mr. GerdesAP Macroeconomics

Consumption & Saving


Disposable income di

Disposable Income (DI)

  • Income after taxes or net income

  • DI = Gross Income - Taxes


2 choices

2 Choices

  • With disposable income, households can either

    • Consume (spend money on goods & services)

    • Save (not spend money on goods & services)


Consumption

Consumption

  • Household spending

  • The ability to consume is constrained by

    • The amount of disposable income

    • The propensity to save

  • Do households consume if DI = 0?

    • Autonomous consumption

    • Dissaving

  • APC = C/DI = % DI that is spent


Saving

Saving

  • Household NOT spending

  • The ability to save is constrained by

    • The amount of disposable income

    • The propensity to consume

  • Do households save if DI = 0?

    • NO

  • APS = S/DI = % DI that is not spent


Apc aps

APC & APS

  • APC + APS = 1

  • 1 – APC = APS

  • 1 – APS = APC

  • APC > 1 .: Dissaving

  • -APS .: Dissaving


Mpc mps

MPC & MPS

  • Marginal Propensity to Consume

    • ΔC/ΔDI

    • % of every extra dollar earned that is spent

  • Marginal Propensity to Save

    • ΔS/ΔDI

    • % of every extra dollar earned that is saved

  • MPC + MPS = 1

  • 1 – MPC = MPS

  • 1 – MPS = MPC


Determinants of c s

Determinants of C & S

  • Wealth

    • Increased wealth .: Inc. C & Dec. S

    • Decreased wealth .: Dec. C & Inc. S

  • Expectations

    • Positive .: Inc C & Dec S

    • Negative .: Dec C & Inc S

  • Household Debt

    • High Debt .: Dec C & Inc S

    • Low Debt .: Inc C & Dec S

  • Taxes

    • Taxes Inc .: Dec C & Dec S

    • Taxes Dec .: Inc C & Inc S


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