Consumption (C)
Total planned household spending on goods and services.
Consumption
Key definitions
Disposable income
Income after direct taxes and benefits.
MPC
Marginal propensity to consume — fraction of extra income spent.
MPS
Marginal propensity to save.
APC
Average propensity to consume.
Wealth effect
Rising asset prices increase spending.
Permanent income hypothesis
Spending based on expected long-run income.
Life-cycle hypothesis
Smooth consumption over lifetime; borrow young, save later.
Consumer confidence
Optimism affects willingness to spend.
Discretionary income
Income after essential bills.
Key concepts
MPC + MPS = 1 for extra income.
Wealth effect links house prices to AD.
Relevant tips
- Diagram backlog: consumption function (C vs Y).
- Use MPC in multiplier questions.