- 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
- 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
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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