You are viewing a free preview of this lesson.
Subscribe to unlock all 10 lessons in this course and every other course on LearningBro.
Consumption (C) is the largest component of aggregate demand, typically accounting for around 60% of UK GDP. Understanding what determines consumption — and its mirror image, saving — is therefore critical to analysing macroeconomic performance. This lesson examines the Keynesian consumption function, the key propensities (APC, MPC, APS, MPS), and the factors that influence household spending and saving decisions.
| Term | Definition |
|---|---|
| Consumption (C) | Household spending on goods and services, including durable goods (cars, appliances), non-durable goods (food, clothing), and services (healthcare, entertainment) |
| Saving (S) | The portion of disposable income that is not spent on consumption. S = Yd − C, where Yd is disposable income (income after tax) |
| Disposable income (Yd) | Gross income minus direct taxes plus transfer payments (benefits). Yd = Y − T + Tr |
The relationship between consumption and saving is necessarily inverse: every pound of disposable income is either consumed or saved.
Yd = C + S
Therefore: S = Yd − C and C = Yd − S
Subscribe to continue reading
Get full access to this lesson and all 10 lessons in this course.