Consumption/ Savings

-Disposable income: income after taxes or net income
DI = Gross income - Taxes
-Consumption: household spending, limited by amount of DI, autonomous consumption, dissaving.
-Saving: household not spending, limited by amount of DI, propensity to consume, DI/= 0
-Average Propensity to Consume (APC)
-Average Propensity to Save (APS)

• APC + APS = 1
• 1 - APC = APS
• 1 - APS = APC
• APC > 1 dissaving

-Marginal Propensity to Consume (MPC)
mpc = change in consumption / change in DI

-Marginal Propensity to Save (MPS)
mps = change in savings / change in DI

• MPC + MPS = 1
• MPC = 1 - MPS
• MPS = 1 - MPC

-Spending Multiplier effect: an initial change in spending
change in AD / change in spending  ( C, Ig, G, Xn)     1 / 1 - MPC or 1 / MPS

-Tax Multiplier: when the government taxes the multiplier works in reverse
tax cut = MPC / 1 - MPC   or  -MPC / MPS