Sunday, March 1, 2015

Disposable Income


  • Income after taxes or net income
  • DI = Gross Income - Taxes
2 choices
  which disposable income, household can either
  • consume (spend money on goods, and services )
  • save (not spend money on goods & services)
Consumption
  • Household spending 
  • The ability to consume is constrained by the amount of disposable income
  • The propensity to save
Do households consume if DI = O
  • Autonomous consumption
  • Disadvantage
  • APC = C/ DI = DI that is Spent saving
Saving
  • House hold NOT spending
  • the ability to save is constrained by the amount of disposable income
  • the propensity to consume
  • Do house holds save if DI + O
  • NO
  • APS = S/DI=%DI that is not spent
APC and APS
  • APC+APS=1
  • 1-APC = APS
  • 1-APS =APC
  • APC > 1.Dissaving
  • -APS.: Dissaving
MPS and MPC
  • Marginal Propensity to consume 
  • change in C/ change in DI
  • % of every extra dollar earned that is spend
  •   Marginal Propensity to save
  •   change in S/ change in DI
  • % of every extra dollar earned that is save 
  • MPC + MPS = 1
  • 1-MPC=MPS
  • 1-MPS=MPC

1 comment:

  1. The information that you provided was great but i think the examples that we did in class would help the people who need a bit more help on this subject. When you gave the notes about MPC, you did not mention the multiplier effects, and how to calculate them. Spending: Multiplier = AD / change in G , IG, C, or XN) Tax: -MPC/1-MPC or -MPC/MPS

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