Consumption and

Savings Function
 Why do we need to decide
on how to spend the money?
Consumption and saving are vital in attaining
economic progress.
The economy of the Philippines is
consumer-oriented.
Consumer’s wants, choice, and taste are the
bases of production.
Knowing how much money is allotted for
consumption and saving is necessary
to determine the volume of goods to be
produced.
Consumption Function
 It shows the relationship between
consumption and income.
 All income spent in consumption result to

economic equilibrium.
 INCOME is one factor that influences a

person’s consumption.
 Other factors are family size, age, source of

income, weather, taste/preference, etc.

 Two Classifications: Personal Income and

Personal Disposable Income

Average Propensity to Consume (APC)
 APC discusses the relation between the
increase in consumption and increase in
income.
Marginal Propensity to Consume
(MPC)
 The change in income that the household
consumes rather than to save.
POINT Y C ΔY ΔC APC MPC
A 30 42 --- --- 1.4 ---
B 50 54 20 12 1.08 0.6
C 70 66 20 12 .94 0.6
D 90 90 20 24 1 1.2
E 110 94 20 14 .85 0.7
F 130 112 20 18 .86 0.9
G 150 124 20 12 .83 0.6
Formulas:
1. APC = C/Y
2. MPC = ΔC/ΔY
Savings Function
 It shows the relationship between saving and
income.
 Saving is the part of income that is not used
for present expenditures but for future use.
 Net Domestic Savings (NDS) – the savings of
the households, business firms, and the
government.
 Saving should be equal to investment to have
an equilibrium in the economy.
Average Propensity to Save (APS)
 It explains the relationship between the
increase in savings and the increase in
income.
Marginal Propensity to Save (MPS)
 It explains every change in savings as to the
change in income.
 It is the change in income that the

household saves rather than to consume.

POINT Y C ΔY ΔC ΔS APC APS MPC MPS
A 30 42 --- --- --- 1.4 -0.4 --- ---
B 50 54 20 12 -8 1.08 -.08 0.6 -0.4
C 70 66 20 12 8 .94 .06 0.6 0.4
D 90 90 20 24 0 1 0 1.2 -0.2
E 110 94 20 14 6 .85 .15 0.7 0.3
F 130 112 20 18 2 .86 .14 0.9 0.1

Formulas:
G 150 124 20 12 8 .83 .17 0.6 0.4

1. MPS = ΔS/ΔY
2. APS = S/Y
In consumption and savings function, people
decide on the ff:

 Spend all the income in consumption

 Save all the income
 Save a portion of the income
 Spend a portion of the income
Best Formula for Savings

1. Income – Expenses = Savings

2. Income – Savings = Expenses
 Fill in the missing data to complete the table.
(11 points)
POINT Y C S ΔY ΔC ΔS APC APS MPC MPS

A 40 50 --- --- --- 1.25 0.25 --- ---

B 55 -5 10 5 -0.9 0.67

C 70 0 10 5 0 0.33

D 85 80 15 5 0.94 0.08 0.33

Essay
1. Do you agree that savings should be a part
of our day-to-day living?
Cite at least 3 reasons and elaborate.