Consumption Spending

• Consumption spending grows in relatively stable manner

• Low income levels: people spend all their income on goods and services

• Moderate income levels: people no longer need to spend their entire income to survive

  • Spend, say, 98% of each additional dollar of income

    • "Marginal propensity to consume"

  • Save 2% of each additional dollar of income

    • ... where "to save" means: "to refrain from spending"

    • "Marginal propensity to save"

• High income levels:

  • High consumption -- but lower marginal propensity to consume

    • Higher marginal propensity to save