Question

Suppose you have the following disposable income and consumption data for an economy, as shown in the table below.

Answer 1

Answer:

Consumption is a key component in the calculation of GDP and refers to how much money out of disposable income is spent by households on goods (both durable and non-durable) and services.

Disposable income is how much money households have after taxes. Their consumption and spending come from here.

Whatever is not spent is saved. Savings are therefore calculated as;

Savings = Disposable income - Consumption

Savings for the above are therefore,

$20,000 - $22,000 = -$2,000

21,000 - 22,500 = -$1,500

22,000 - 23,000 = -$1,000

23,000 - 23,500 = -$500

24,000 - 24,000 = $0

25,000 - 24,500 = $500

26,000 - 25,000 = $1,000

27,000 - 25,500 = $1,500

28,000 - 26,000 = $2,000