Determinants of consumption?

Question

Define

-MPC

-APC

-Autonomous Consumption

MPC is the marginal propensity to consume, from what i know and its represents how much of a raise in pay is spent? no?

i have no clue what APC is : (

and auton. consumtion is what expenditure that occurs when income levels are zero, right?

thankyou!

Answer 1

The marginal propensity to consume (MPC) refers to the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers). For example, if a household earns one extra dollar of disposable income, and the marginal propensity to consume is 0.65, then of that dollar, the family will spend 65 cents and save 35 cents.

Mathematically, the marginal propensity to consume (MPC) function is expressed as the derivative of the consumption (C) function with respect to disposable income (Y).

Average propensity to consume (APC) is the percentage of income spent. To find the percentage of income spent, one needs to divide consumption by income, or . In an economy in which each individual consumer saves lots of money, there is a tendency of people losing their jobs because demand for goods and services will be low. Thus saving as a leakage is an advantage from the savers' point of view, while for the economy as a whole it is a considerable disadvantage.

Sometimes, disposable income is used as the denominator instead, so .

Where C is the amount spent, Y is pre-tax income, and T is taxes

The inverse is the average propensity to save (APS).