ECN 204 Chapter 8: ECN 204 Chapter 8 Notes.docx

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13 Mar 2012
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45 (degree) line is a reference line that bisects the 90 degree angle formed by the two axes, and along which consumption equals disposable income. The consumption schedule: consumption schedule is a schedule showing the amount households plan to spend for consumer goods at different level of disposable income. Average and marginal propensities: apc and aps: Average propensity to consume (apc) is the fraction (or percentage) of disposable income that households plan to spend for consumer goods and services. Average propensity to save (aps) is the fraction (or percentage) of disposable income that households save. Aps = saving / income: mpc and mps: Marginal propensity to consume (mpc) is the fraction (or percentage0 of any change in disposable income spent for consumer goods. Mpc = change in consumption / change in income. Marginal propensity to save (mps) is the fraction (or percentage) of any change in disposable income that households save.

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