CONSUMPTION AND SAVINGS MULTIPLIERS

Disposable Income
-The income after taxes [Gross - Taxes]
-Consume or save (Spend or not spend)
-Consumption - Restricted by DI & propensity to save
-If DI = 0, autonomous consumption and dissaving

Saving - Restricted by DI & propensity to consume
If DI = 0, no saving


APC/APS = Average propensity to consume/save
-APC + APC = 1
1 - APC = APS
1 - APS = APC
-APS or when APC > 1 -> Dissaving

Multipliers
MPC + MPS = 1
MPC = 1- MPS
MPS = 1 - MPC

MPC
-Marginal ... Fraction of any change in DI consumed
(Change in Consumption/Change in DI)

MPS
-Fraction of DI saved
(Change in Saving/Change in DI)

Spending Multiplier Effect
-Initial change in spending; causes larger change in AS or AD
(1/(1-MPC)) or 1/MPS
-Multiplier = (Change in AD/Change in C, Ig, G, or Xn)
-Positive is increase; Negative is decrease

Tax Multiplier
-Reverse multiplier because it leaves circular flow
-Tax cut is positive because money enters circular flow
-Always negative
-(MPC/(1-MPC)) or -(MPC/MPS)
-Multiplier = (Change in AD/Change in C, Ig, G, or Xn)