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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

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