Unit 3 February 23

• Consumption and Savings
• 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
• Dissavings 
• APC = C/DI = % DI that is spent 
• Savings
• 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 = % of DI that is not spent 
• APC and APS
• APC + APS = 1
• 1 - APC = APS
• 1- APS = APC
• ADC > 1: Dissavings 
• -APS : Dissavings 
• MPC and MPS
  
• Marginal propensity to consume 
• Change in C/ Change in DI
• % of every extra dollar earned that is spent 
• Marginal propensity to save 
• Change in S/ Change in DI
• % of every extra dollar earned that is saved 
• MPC + MPS = 1
• 1-MPC = MPS
• 1-MPS = MPC
• Determinants of C and S
• Wealth 
• Expectation
• Household debt 
• Taxes