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Chapter 3 · Part 1

Consumption, Savings, and Investment Behavior

What we spend and what we set aside — the consumption function & MPC.

26
Concepts
12
Formulae
26 min
Read time
Intermediate

Learning objectives

  • 1Explain 1 The Fundamental Consumption Decision
  • 2Explain the Consumption Function: Relating Income to Spending
  • 3Explain factors Affecting the Consumption Function
  • 4Explain the Marginal Propensity to Consume (MPC): Critical for Policy
  • 5Explain 2 Savings: The Counterpart to Consumption
  • 6Explain the Saving Decision

Your learning path

Introduction
3.1 The Fundamental Consumption Decision
The Consumption Function: Relating Income to Spending
Factors Affecting the Consumption Function
The Marginal Propensity to Consume (MPC): Critical for Policy
3.2 Savings: The Counterpart to Consumption
Understanding the Saving Decision
Factors Affecting the Saving Rate
3.3 Investment: The Growth Engine
Summary
Quiz
Revision
Follow the full path

Key terms

Factor 2: Interest RatesDecisionPractical ExampleReal-World ExampleMPSTaxesSavingsLeakagesInvestmentInjectionsNet ExportsSimple ViewConsumptionSavings ratePublic SavingsPrivate Savings

Connected chapters

National Income Accountingshares: Practical Example, Investment, Consumption
26Concepts
12Formulae
26Minutes
PreviousNational Income AccountingNextDetermination of Income and Employment