Asked Nov 6, 2019
  1. Please explain the relationships between income, consumption, savings, and GDP. Define each one. Explain the relationship between these items.

Expert Answer

Step 1

Income is the financial gain earned during a particular period of time.

Consumption spending is the total income spends on consumption of goods and services.

Savings is the part of income which is not used for consumption.

GDP (Gross Domestic Product) is the sum of the final value of all goods and services produced in an economy during a particular period of time, usually it is one year.  

Step 2

The income is the sum of savings and consumption. Therefore, the difference between income and savings is the consumption and difference between income and consumption is the savings. This relation is explained with equation form.

Income Consumption+Savings
Consumption Income-Savings
Savings Income-Consumption

Image Transcriptionclose

Income Consumption+Savings thus Consumption Income-Savings Savings Income-Consumption

Step 3

Therefore, when income increases, the consumption and savings would increase. When consumption increases and i...

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