a) disposable income

a) disposable income and its influence on consumer spending

b) an understanding of the relationship between savings and consumption

disposable income = money left over after direct taxes have been paid and transfer payments have been received

• direct taxes increase = disposable income decreases

• transfer payments increase = disposable income increases

disposable income decreases = consumption decreases

disposable income increases = consumption increases

disposable income can either be saved or spent

• disposable income is saved = consumption decreases

• disposable income is spent = consumption increases

economic decline = higher savings

economic growth = lower savings