Consumptions and Savings Functions...pdf

Consumption and savings function

1. Consumption
and Savings
Function

2. Consumption and
Saving Functions
Economic activities like consumption and saving
are vital in attaining economic progress and
development. Many countries are consumer
oriented, meaning consumer’s wants, choice, and
taste are the bases in the production of goods and
services

3. Consumption Function
It shows the relationship between
consumption and income. All income
spent in consumption result to
economic equilibrium.
The amount of income of an individual
has determines the amount of
consumption. It is classified into
personal income and disposable
income.

4. Consumption Function
Personal Income
The total income received
An income ready for
consumption after deducting the
taxes, and other mandatory
contributions.
Disposable Personal
Income

5. Average Propensity to Consume (APC)
APC discusses the relation between
the increase in consumption and
increase in income.
In measuring the APC, the formula
C/Y, (C for consumption, Y for income)
will be used to determine how much of
the household’s income will be spent
for consumption.

6. Marginal Propensity to Consume
(MPC)
MPC illustrates the consumption
change in every change in income. To
know the MPC, use the formula
△Y/△C.
MPC is the change in income that the
household consumes rather than to
saves.

7. Marginal Propensity to Consume
(MPC)
MPC illustrates the consumption
change in every change in income. To
know the MPC, use the formula
△Y/△C.
MPC is the change in income that the
household consumes rather than to
saves.

8. Table No. 1
Hypothetical Data on Income and Consumption
Million Pesos
Point Y C △Y △C APC MPC
A 30 42 — — 1.4 —
B 50 54 20 12 1.08 0.6
C 70 66 20 12 .94 0.6
D 90 90 20 24 1 1.2
E 110 94 20 14 .85 0.7
F 130 112 20 18 .86 0.9
G 150 124 20 12 .83 0.6

9. Saving Functions
The saving function is the relationship
between saving and income. Saving is
that part of income that is not used for
present expenditures, that is keeping a
percentage of the income for future
use.
To get the savings (S), use the formula
Y -C.

10. Average Propensity to Save (APS)
APS explains the relationship between
the increase in savings and the
increase in income.
To determine the APS, use the formula
S/Y.

11. Marginal Propensity to Save (MPS)
MPS explains every change in savings
as to the change in income. It is the
change in income that the household
saves rather than consume.
To determine the MPS, use the formula
△S/△Y.

12. Table No. 2
Hypothetical Data of Income, Consumption, and Savings
Million Pesos
PointY C △Y △C △S APC APS MPC MPS
A 30 42 — — — 1.4 -0.4 — —
B 50 54 20 12 -8 1.08 -.08 0.6 -0.4
C 70 66 20 12 8 .94 .06 0.6 0.4
D 90 90 20 24 0 1 0 1.2 -0.2
E 110 94 20 14 6 .85 .15 0.7 0.3
F 130 112 20 18 2 .86 .14 0.9 0.1
G 150 124 20 12 8 .83 .17 0.6 0.4