Concept Introduction:
The formula to calculate change in GDP is,
Here,
- is autonomous spending.
- MPC is marginal propensity to consume.
Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income.
The formula to calculate MPC is,
Here,
- is change in income.
- is change in consumption level.
- MPC is marginal propensity to consume.
Marginal Propensity to Save ( MPS ):. It is defined as the variation in the saving when the income of an individual varies.
The formula to calculate MPS is:
Here,
- MPC is marginal propensity to consume.
- MPS is marginal propensity to save.
Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income.
Consumption Function: It shows how the change in disposable income of an individual changes the consumption level.
The formula to calculate consumption function is,
Here,
- C is consumption level.
- is autonomous consumption.
- is disposable income.
- MPC is marginal propensity to consume.
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