Consumption and
Saving Schedule
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GDP=DI C
$370
$375
390
390
410
405
430
420
450
435
470
450
490
465
510
480
530
495
550
510
S
$ -5
0
5
10
15
20
25
30
35
40
APC
1.01
1
.99
.98
.97
.96
.95
.94
.93
.93
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APS
- .01
.00
.01
.02
.03
.04
.05
.06
.07
.07
MPC
MPS
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
0.75
0.25
2
APC and APS
APC: average propensity to consume:
 APS: average propensity to save
 APC = C / DI and APS = S / DI
 The % of total income that is consumed
(APC), and the % of total income that is saved
(APS).
 APC falls and APS rises as DI increases.

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MPC and MPS
MPC: marginal propensity to consume
 MPS: marginal propensity to save

MPC = ∆C / ∆DI and MPS = ∆S / ∆DI
 The % of any change in income that is
consumed (MPC) and the % of income that is
saved (MPS)
 MPC + MPS = 1 --- (1)
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MPC and MPS are slopes:
The slope of the consumption schedule =
MPC, the slope of the saving schedule
= MPS.
 Even when DI=0, C≠0.

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Consumption Schedule
C
Income (Y)
Break-Even Point (C=Y)
C
Saving
Dissaving
45o
DI
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Consumption Schedule
C
Income (Y)
Break-Even Point (C=Y)
C
Saving
Dissaving
45o
DI
Autonomous C (a)
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Saving Schedule
S
+
S
0
-
DI
Break-Even point (S=0)
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Saving Schedule
S
+
S
DI
-
Break-Even point (S=0)
Autonomous C (-a)
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Determinants of Consumption and
Saving
The most important factor is income (DI):
an increase in DI will lead to an increase
in C by (MPC.DI) and increase in S by
(MPS.DI).
 This will be a move along the C schedule
and S schedule.
 The same result apply when DI declines.
 DI is the only factor that leads to a move
along the lines.

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Non-income determinants:
Non-income factors will shift the C and S
schedules.
1. Wealth: an increase in wealth will
increase C and reduces S
(shift the C schedule upward, S schedule
downward).

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This is the case since people save to
accumulate wealth.
 As wealth increases, no need to save as
much as before.
 This is called “wealth effect”.

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2. Expectations: about future prices and
income level.
 Expectations affect spending (C) and
saving.
 Expectations of an increase in price level
(or future income): increase C and reduce
S today, C schedule shifts upward while S
schedule shifts downward.

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3. Taxation: increase in taxes will shift both
C and S schedules downward:
DI = C + S + T
While tax reduction will shift both upward
(higher DI)

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4. Household Debt: borrowing money allow
C to shifts upward, but if the debt is large,
then C may shift downward.
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