Page 77 - Macroeconomics. book docx_Neat

Saving is the portion of income not spent on consumption.

S = Y - C

As income increases, both consumption and saving increase.

9. Average and Marginal Propensities

APC = C / Y

APS = S / Y

MPC = ΔC / ΔY

MPS = ΔS / ΔY

MPC + MPS = 1

10. Numerical Examples

Example:

1- Income rises from 100 to 200, consumption rises from 80 to 140.
MPC = 60/100 = 0.6, MPS = 0.4

2- Suppose the consumption function is:

C = 50 + 0.8Y

If income is 500:

C = 50 + (0.8 × 500) = 50 + 400 = 450

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