Calculations

APC and APS Average propensity to consume and save
APC+APS=1
1-APC=APS
1-APS=APC
APC>1 = Dissaving
-APS = Dissaving

MPC and MPS Marginal propensity to consume and save
MPC+MPS=1
1-MPC=MPS
1-MPS=MPC
-MPC
change in consumption/change in disposable income
% of every extra dollar earned that is spent
-MPS
change in savings/change in disposable income
% of every extra dollar earned that is saved

Determinants of C&S
-Wealth
-Expectations
-Household debt
-Taxes

The Spending Multiplier Effect
-An initial change in spending (C Ig G Xn) causes a larger change in aggregate spending or demand
Multiplier= change in AD/change in spending
-Why?
Expenditures and income flow continuously which sets off a spending increase in the economy

Calculating the spending multiplier
-Positive if increase in spending and negative in decrease of spending
-Calculated from the MPC or MPS
Mult= 1/1-MPC or 1/1-MPS

Calculating the tax multiplier (-)
-When the government taxes, multiplier works in reverse
-Why?
because now money is leaving the circular flow
-Tax Multiplier
=-MPC/1-MPC or -MPC/MPS
-If there is a tax cut, the multiplier is positive because there is more money in the circular flow