Consumption and Savings Function

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# Consumption and Savings Function - PowerPoint PPT Presentation

Y = C atau BEP. Consumption and Savings Function. Income = spending. C = a + bY. Consumer spending and saving. S = -a + (1-b)Y. According to the Keynesian consumption function, savings are positively related to the level of disposable income.

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## Consumption and Savings Function

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Y = C atau BEP

### Consumption and Savings Function

Income = spending

C = a + bY

Consumer spending and saving

S = -a + (1-b)Y

According to the Keynesian consumption function, savings are positively related to the level of disposable income.

At low levels of income, total spending may exceed income causing dis-saving.

As income rises, total savings rise - the gradient of the savings function is given by the marginal propensity to save

Disposible Inccome (Y)

150

C = 30 + 0,75Y

120

Y = C or BEP

### Consumption and Savings Function

Income = spending

Consumer spending and saving

autonomous consumption

30

S = -30 + (1 - 0,75)Y

WhilstNational Income Rp 120 billion, Total consumption Rp 120 billion

Whilst National Income rise go Rp 160 billion, Total consumption Rp 150 billion

Change of Y : Change of C : MPC C function S function

Y1 = 120 C1 = 120 MPC = 30/40 C = 30 + 0,75YS = -30 + (1-0,75)Y

Y2 = 160 C2 = 150 MPC = 0,75

Y = 40 C = 30 (a)

0

120

160

Disposible Inccome (Y)

-30