Consumption & savings

CONSUMPTION

• House spending- 2/3 of totoal AD
• Positive relationship betweeen disposable Y and consumer spending
• gradient of consumption function gives MPC
• Average propensity to consume= total consumption divided by total Y
• Marginal propensity to consume= change in consumption resulting from change in disposable Y

SAVING

• saving is an act of postponing consumption
• average propensityy to save= porportion of disposable Y  that is saved rather than spent
• marginal propensity to save is the change…