THEORICAL OF CONSUMPTIONS

PAPER ASSIGNMENT AS THE TASK OF INTRODUCTION

TO ECONOMICS
THE LECTURE: ABDUL YUSUF, S.E, M.M

Groups 5 a
Names :

Class :

Dimas Willy Prayoga

(1510631020064)

Khoirun Nisa Alfitri

(1510631020122)

Nia Darnia

(1510631020160)

1 MA 8

MANAGEMENT DEPARTEMENT
ECONOMIC AND BUSINESS FACULTY
SINGAPERBANGSA KARAWANG OF UNIVERSITY
KARAWANG
2015

PREFACE

Frist of all, we praised to Allah SWT for His loves and graces for us. Thanks
to Him for helping us and giving us the chance to finish this assignment on time.
In this paper we discuss the Theoretical of Consumption as one of the task of
the subject introduction to economics at University of Singaperbangsa Karawang
year 2015. And we would like to say thank you to Mr. Abdul Yusuf S,E M.M as
the lecturer who always teaches us and gives us much knowledge about the
Economics Introduction field.
This paper is made to fulfill Economics Introduction assignment. We
composed this paper with various references of the books and although website
(Wikipedia encyclopedia) and cooperation from each member of the group, so we
can complete this paper. For that, we would like to say thank you for everyone who
helped us in making this paper.
However, we realize this paper is not perfect yet, we will so glad to receive
the suggestions and criticism about this paper, and we hope this paper can give a
lots of advantages for readers. Thank you.

Karawang, November 24th, 2015

Author

CONTENT

Preface .............................................................................................................. i
Content ............................................................................................................ ii
CHAPTER I: INTRODUCTION
A. Background ................................................................................................ 1
B. Problem Formulation ................................................................................. 4
C. Paper Purpose ............................................................................................. 4
D. Benefits ...................................................................................................... 4
CHAPTER II: THEORITICAL BACKROUND
A. What Is The Consumption ........................................................................ 5
B. Kinds Of Hypothesis Theory
1. Theory of J.M Keynes .......................................................................... 5
2. Life Cycle Hypothesis .......................................................................... 6
3. Income Absolutes Hypothesis James S. Duesenberry ........................ 7
4. Permanent Income Hypothesis............................................................. 7
5. The Relative Income Hypothesis ........................................................ 8
C. Factors That Affect The Level Of Consumption ....................................... 9
a. Economic Factors ................................................................................ 9
b. Demographic Factors (Population) ..................................................... 12
c. Non-Economy Factor .......................................................................... 13
CHAPTER III: CASE DISCUSSION
A. The relationship between the consumption with income .......................... 15
1. Propensity To Consume And Save ................................................... 15
i. Propensity To Consume ................................................................ 15
a. Marginal Propensity to Consume (MPC) ................................ 15
b. Average Propensity to Consume (APC) .................................. 16
c. Example calculate MPC & APC ............................................. 16
ii. Prospensity To Save ....................................................................... 17
a. Marginal Propensity To Save (MPS) ......................................... 17
b. The Average Propensity To Save (APS) ................................... 17

ii

c. Example of calculating the MPS and APS ................................ 18

2. The Relationship Between the Inclination to Consume and Save .. 19
i. MPC + MPS = 1 ...................................................................... 19
ii. APC + APS = 1 ....................................................................... 19
3. The Consumption Function ............................................................ 19
4. Saving Function .............................................................................. 20
B. The Calculation Of Consumption ............................................................... 20
CHAPTER IV: CLOSING
A. Conclusion ............................................................................................... 23
B. Suggestion ................................................................................................ 23

BIBLIOGRPHY .............................................................................................. 24

iii

CHAPTER I
INTRODUCTION

A. BACKGROUND
J. R. McCulloch, an economist of the early nineteenth century, wrote,
Consumption is in fact, the object of industry. Goods and services are
produced so that people can use them. The factors that determine
consumption thus determine how successful an economy is in fulfilling its
ultimate purpose: providing goods and services for people. So, consumption
is not just important because it is such a large component of economic
activity. It is important because, as McCulloch said, consumption is at the
heart of the economys fundamental purpose.
Broadly, the definition of the term takes consumption of two different
languages, is derived from the consumption of the Netherlands and the
United Kingdom language consumption, which means activities that aim at
reducing or spending power to a body, either in the form of goods or
services, to meet the needs that are important or just purely pleasure and
satisfaction in time instantly.
In fact humans have instincts to meet the needs and desires to make a
living. The things that are included in the consumption of very diverse. One
of them is the activity of buying any goods and services. This consumption
activities are created due to someone who is in the process of production or
manufacture. Vice versa, the production activities there because the person
who conducted the activities of over consumption of these products. Then it
can be said that the activities of consumption is very closely related to the
production activities. This activity aims to obtain satisfaction and extended
our reach the level of prosperity in the sense of fulfilled a wide range of
needs of both secondary needs, luxury goods, as well as the physical and

spiritual needs. To be able to consume, a person must have an income. big

nothingness of one's income is very determining levels of consumption
The current economic growth is based on consumption because of the
role of sector investment and exports propel economic growth. Background
to the issues that have been described previously, the compiler will try to
explain what is included in the theories of consumption.
Relates consumption spending to the level of disposable personal
income. The curve shifts when other determinants of consumption change.
Examples of changes that could shift the consumption function are changes
in real wealth and changes in expectations. "Shifts in the Consumption
Function" illustrates how these changes can cause shifts in the curve.

The relationship between consumption and consumer expectations

concerning future economic conditions tends to be a form of self-fulfilling
prophecy. If consumers expect economic conditions to worsen, they will cut
their consumptionand economic conditions will worsen! Political leaders
often try
2

to persuade people that economic prospects are good. In part, such efforts are
an attempt to increase economic activity by boosting consumption.
Consumer Spending
Even when the price level of goods and services is stable, U.S. consumers
may choose to consume more. When consumersdecide to purchase more, the
aggregate demand curve shifts to the right. Some of the factors that alter
consumerspending habits are:

Wealth: Stocks, bonds, and physical assets are all considered consumer
wealth. A sudden increase in any of thesephysical or financial assets
allows producers to consume more, thereby increasing aggregate demand
as a resultof the wealth effect. Conversely, a major decrease in consumer
wealth lowers aggregate demand.

Consumer expectations: Changes in consumer expectations affect

aggregate demand. For example, if Joe isexpecting his annual Christmas
bonus, in anticipation of receiving his bonus he will consume more goods.
Thiseffect increases the current consumption for goods and increases
aggregate demand.

Household debt: If households experience higher debt than normal,

consumers may be forced to cut currentspending to pay off the amassed
debt. If this occurs, consumption declines and the aggregate demand curve
shiftsto the left.

Taxes: When personal income taxes decrease, consumers have more

disposable income to use for goods and services.This shifts the aggregate
demand curve to the right. Tax hikes shift the curve to the left.

B. PROBLEM FORMULATION
1. What is meant by consumption?
2. What is the relationship between the consumption with income?
3. Describe the function of consumption?
4. What Factors affect consumption?
5. What are the cornerstone of the existing theories in consumption?

C. PAPER PURPOSE
This paper we arrange for:
1. Understand what is meant by consumption
2. Find out the relationship between the consumption with income
3. Figure out what function the consumption
4. Find out what are the factors that affect consumption
5. Know the consumption theory based on experts

D. BENEFIT
Term paper writing is expected to be a source of additional information
and for students of Economics and Business in particular. Compiler expects
this paper can be an exposure that is easy to understand and can help in the
implementation of the completion of tasks in business economics and
management majors in particular, besides it can know the theory of
consumption and can display them in the life of a day today

CHAPTER II
THEORITICAL BACKGROUND

A. WHAT IS THE CONSUMPTION

consumption is an activity that aims to reduce or spending power to an object
in the form of goods and services to meet the needs. However, when translated
into macro-economic explanations, the consumption is classified into household
consumers, the purchase of goods or services with the aim to meet the exact
requirement or make purchases based on revenue held or acquired. When the
consumption activity that does not spend all the revenue generated, then the rest
of the money is called savings. If the consumption expenditures of all people in a
country are summed, the result is a society of consumption expenditures of the
State concerned.
B. KINDS OF HYPOTHESIS THEORY
1. THEORY OF J.M KEYNES

Keynes in

the

1930s made

three assumptions

about the

theory

of consumption. First he assumed that the marginal propensity to consume,

namely the number of consumed of each additional dollar is between zero and
one. This explains the assumptions at the time of a person's income the
higher the higher consumption and his savings.
The second is the ratio of keynes's theory of consumption against income,
called a

tendency to

when incomes rise. According

people's savings are

greater

consume on
to keynes,
than the

average (APC) down

the

proportion

poor. If ordering from

of rich
the

very

poor to rich people will look the proportion of savings against the increasing
income.

Finally, the income is an important determinant of consumption and the

interest rate does not have an important role. This is in contrast with the
classical economists assume the higher interest rate then it will push the level
of savings and reduce consumption.
2. THEORY LIFE CYCLE HYPOTHESIS

Ando, Brumberg, and Modigliani (18th century) has a hypothesis that

socio-economic factors one can affect the person's consumption patterns.
They divide three parts consumption patterns based on the age of a person as
in the graph below.
Graphic of cycle life
Part

I is age

0 up

to t0,

person experiencing the dissaving where people don't have an income but have
to consume. Age t0 to t1, people still do dissaving because consumption greater
than revenue. Part II

is

the age up

to t1 t2,

person experiencing

saving where income is greater than consumption. For part III is the age of
the t2 return, where people do dissaving. It's not enough to mention generate
income sufficient to cover expenses.
Function consumption of this theory is
C =aW
a is the MPC whose value depends on the age, taste, and the interest rate,
while W is affected by the present value of earnings from wealth, present

value of

earnings

from

work, retribution and

the present

value of the

expected wage earners received a lifetime.

Specifically the function consumption as follows:

Where:
C: consumption spending
a: is the MPC
A: is the wealth

YLE: the expected life time earnings

since this year
T: is the rest of a person's age is

YL: is income from work

calculated from

the

current

3. INCOME ABSOLUTES HYPOTHESIS JEMES S. DUESENBERRY

According to the absolute income hypothesis, the consumption is

determined by the level of revenue absolutes, so that the relationships between
income and consumption is the function of the consumption of the short term.
Therefore the curve is always cut vertical point. But based on experience, the
function of short term consumption shifted to the top of all the time to produce
the function of long term consumption.
Something that caused function of short term consumption to the top:
a. The migration or urbanization occurs residents. And we know that the city
consumption are higher than the consumption of the village. In other word
part of income that consumed by the town proportions higher then villagers
consumption. So obviously migration or urbanization occurs tend to
improve the consumption although there is no increase in the income.
b. The available new stuff in economic. Although the income consumers is
constant, but if there is a new stuff consumer will aroused to improve the
consumption. For example: there are new shopwash then people expected to
bought a new product than before.

4. PERMANENT INCOME HYPOTHESIS

M Friedman (1957) explains, the behavior of consumption by using

permanent income hypothesis. In whose hypotheses, people's income can be
differenciated into two permanent income and income in the meantime.
Permanent income is income expected people to continue to survive in the
future. While revenue is part of the revenue is not expected to continue to
survive. The value of this income is sometimes positive and sometimes
negative.
The size of the revenue itself isa summation and permanent income and
income while or mathematically written:
Y = Yp + Yt
Where Y is income that is measurable, permanent, income is the Yp and Yt is
temporary income.
To that, Friedman argued that consumption should depend on the
income of the permanent, because consumers use a savings and loan to launch
a consumption in response to changes in income in the meantime. So the
function of the consumption according to Friedman is as follows:
C=YP
Where is a constant measure of permanent income part consumed
5. THE RELATIVE INCOME HYPOTHESIS

According to this hypothesis of consumption is a function of the relative

current income in comparison with the highest revenue ever achieved before.
Similarly consumption surrounding neighbors will affect a person's
consumption level. As a result when the individual income levels grow higher
consumption will increase proportionally to increased.
But if income levels fall, consumption does not come down
proportionately long term consumption follows function, but rather follow the

consumption function short term. Therefore, we can illustrate that the function
of that consumption must be long term because it is always higher levels of
consumption in relation to a higher level of income in the long term. so the
basic function of the relative income hypothesis is a function of long-term
consumption.
C. FACTORS THAT AFFECT THE LEVEL OF CONSUMPTION
Many

factors influence the

magnitude

of consumption expenditure of

households, these factors can be classified into three factors:

a. Economic factors
b. Demographic factors (population)
c. Noneconomic Factors
a. Economic Factors
The four factors that determine the economic levels of consumption are:
1. Household income
2. Household wealth
3. The amount of consumer goods durable in the community
4. Interest rate
5. Household expeclation about the future
6. the Government's policy of reducing inequality and income distribution

1. Household Income
Household income level are large in affect of its influence on
consumption, usually the
the higher

the rate

more
of

good (high) level

consumption. Because

of

income,

the income

level increases. The ability of the number of households will need to

buy more, or perhaps the patterns of life would be
More consumerist. At least the increasingly demanding the best
quality. An example is the father's income is very low, usually
selected rice for consumption is

also a type

of rice

with low or

medium qualities, the giant dish any salted fish that cheesy. May also

be a means of television at home is black and white, otherwise if the

father can sufficient income will

be

able

to purchase

the rice quality and means that is in their house shall be fulfilled in
accordance with what they wants.

2. Household Wealth
Covered in
example is a

terms

of household

House, land,

deposits, shares, and it is

consumption, because
example,

income is real

car),

and

wealth (for

financial (fixed

valuable), such wealth can

of

the added income

the deposit

increase

of disposabel, for

interest received each

monthand dividends received each year to supplement the household

income. Likewise, House, land, car for rent. Earnings above referred
to

asincome instead

of wages. Of the income will

be

used as consumption, surely this will issue consumption expenditure

3. The Number Of Durable Consumer Goods In The Community

Community expenditure is

also influenced goods consumer

goods durable. Its influence on the level of consumption is positive

(increase) and negative (reduce). In aircraft, the more tv there is in
society,

then

it

movies (particularly

will reduce
in

the people went

to

watch

the transport and meals). But a

the

growing

number of available vehicles cars and motorcycles, it will be more

and more expenditure to buy gasoline, or repairs, food and so on.
Stuff the old stuff is usually expensive, and to get it takes
time for saving. If the purchase in cash then it should be a lot
of saving (consumption is

reduced). But

if

you

buy

it on

credit then the time saving is when buying goods.

10

4. Interest Rate
High

interest

rates may

reduce or dismiss the

desire of

consumption, whether viewed from the side of the family that owns
the excess money or

by a lack

of

high price level then, economic

money. With

the

costs of consumption will

be

more expensive. For those who like to eat with the debtor, usually by
borrowing to banks or put on a credit card. Interest expense is
getting expensive, so better to postpone or reduce consumption. As
well as those who have a lot of money. High interest rates cause the
retention money

in

the

bank will

be

more profitable, rather

than spend the money to consume. If low interest rates, which would
otherwise occur. For the

rich, money

in

the

bank led

to storage cost consumers even

greater delays. While for under

privileged

of borrowing which

families the

cost

became

the lower will boost the courage and passion of consumption.

5. The Household Expectation About The Future

If

the

household estimates the

will freely do consumption tends

household estimates the

to

future better, they

be binding. If

future grew ugly, they

the

will getting the

preparations for issuing the consumption

Internal factors are used to estimate the future prospects of
households among

others

would get job? What

is

are: whether the father and

the career

and their

mom sure
salaries will

increase. How many family members who have and will work? How
much

is

influence the

the salary or their

prediction

income? While

the factors that

of external households

in the

future include the condition of the domestic international economy,

the

kind

of type

and direction

of economic

policy

of the

Government on the run.

11

6. Government Policy Reduces The Interest Income Distribution

On the face of it has been put forward that the MPC on the high
income group lower in the MPC's appeal in a low-income
community groups. The Government's desire to reduce inequality in
the distribution of income turns out will cause the increase of
spending on consumption of society as a whole. For example Rp.100
million drawn in the Government in the form of community in the
form of tax high income brackets (with MPC amounting to 0.65) will
cause a decreased their consumption as much as Rp65 million,
however, the extra income as much as $ million it received for lowincome community groups (in the form of transfer payment of
subsidies), will lead to their increased consumption spending as
much as Rp80 million (because the MPC they amounted to 0.8), thus
it appears that the same national consumption activities Community
consumption, usually become greater than before, because the policy
of the Government doing the redistribution of national income

b. Demographic Factors (Population)

Included in the factors of population is the number and
composition of the population:
1) Population
The total population of which many will enlarge the
consumption expenditure, although the average income per
person is low. For example, although the level of the Community
consumption of Indonesia is lower than Singapore's population,
but in absolute levels of spending on consumption of Indonesia is
greater, when the population more and more and the number of
capita higher than Singapore. Because the population of Indonesia
fifty times bigger than Singapore. Household consumption levels

12

will be even greater. A country's consumption expenditure will be

even greater.
2) The Composition Of The Population
The composition of the population of a country can be seen
from some of the classification, including: age (productive and
unproductive), education (low, high, and natural), and area of
residence (urban, rural). The influence of the composition of the
population against the level of consumption of the simple as
outlined below:
a. More and more residents who are working or productive age
(15-64 years), the greater the level of consumption, especially
when most of them had the opportunity to work on high, with
a reasonable wage or better. Because the more people work,
earnings are also getting bigger
b. The higher the educational level of the community, the level
of consumption is also higher. Because by the time a person
or a family is the more highly educated, needs his life more
and more. They should fill no longer just needs to eat and
drink, but also information needs, the Association for a better
society as well as the need for the recognition of other people
against its existence. Often the costs incurred to meet this
need is much greater than the cost of fulfillment to eat and
drink
c. The more people living in urban areas, consumption spending
is also high. Because the general pattern of urban community
life more consumptive than rural communities
c. Non-Economy Factor
The noneconomic factors that affect the magnitude of
consumption is a factor of social cultural community. For example,

13

changing the pattern of change in eating habits, ethics and values to

replicate to other community groups considered more fabulous (ideal
type). The most concrete example in Indonesia is a change in the
habits of shopping from traditional article to the grocery store.
Similarly, the eating habits of eating food provided the mother at
home become a habit of eating in the restaurant or hawker centres
that provide fast food. Likewise, the home is not just a shelter from
the heat and rain, but rather the expression of the self. Not surprising
when there are households that spend hundreds of millions, even
billions of dollars, just to buy a dream house.
In the real world, it's hard to sort through and choose what
factors affect what, thus precipitating the change/increase in
consumption. Because the three factors above are closely
interrelated and mutually influenced. Therefore, when just happen
in a low-income community groups that impose to buy goods and
services that are in fact not in accordance with its ability. The
attitude may be due to the influence of the rich group of life that
they watch on television.

14

CHAPTER III
CASE AND DISCUSSION

A. THE RELATIONSHIP BETWEEN THE CONSUMPTION WITH

INCOME
1. Propensity to consume and save
i. propensity to consume
ii. propensity to save
i. PROPENSITY TO CONSUME
a. Marginal propensity to consume (MPC)
is a concept which gives an overview of some consumption
will increase if disposable incomes increased by one unit. Can be
defined as the ratio between the increase in consumption ()
block, performed with increasing disposable income (Yd)
acquired
0MPC1

MPC =

means, an additional amount of consumption will not be

greater than the additional disposable income, so the MPC figures
will not be greater than 1. Figures MPC also not possible
negative, whereby if the disposable income continues to rise,
consumption continued to decline to zero (no consumption).

15

b.Average Propensity to Consume(APC)

Is the ratio between the total consumption of the total disposable
income. Can be defined as the ratio between the level of
consumption expenditure (C) with the level of disposable income
on consumption when it is done (Yd).
MPC <1, then the APC> 1.

APC =

c. Example Calculate MPC & APC

Disposable
Income (Yd)

Rp200,000
Rp400,000
Rp600,000
Rp800,000

Rp200,000
Rp400,000
Rp600,000
Rp800,000

MARGINAL AND AVERAGE SAVING PROPENSITY

Consumptio
n
Marginal Prospensity
Average Prospensity
Expenditure
Consumption (MPC)
Consumption (APC)
s (C)
Example 1 : MPC FIXED
Rp300,000 / Rp200,000 =
Rp300,000
1,5
Rp450,000 / Rp400,000
Rp450,000 Rp150,000 / Rp200,000 = 0,75
=1,125
Rp600,000 Rp150,000 / Rp200,000 = 0,75 Rp600,000 / Rp600,000 = 1
Rp750,000 / Rp800,000 =
Rp750,000 Rp150,000 / Rp200,000 = 0,75
0,9357
Example 2: MPC MORE SMALL
Rp300,000 / Rp200,000 =
Rp300,000
1,5
Rp460,000 / Rp400,000 =
Rp460,000 Rp160,000/ Rp200,000 = 0,80
1,15
Rp670,000 / Rp600,000 = 1,
Rp610,000 Rp150,000 / Rp200,000 = 0,75
017
Rp750.000 / Rp800,000 =
Rp750,000 Rp140,000 / Rp200,000 = 0,70
0.9875
The

results

of the

counting

in column 3 while counting results

of the MPC are

of the

APC is

shown
shown

16

in column 4. From example 1 and 2 can be seen that the

APCchangeable value,

and value the

longer lower. When

smaller than C, then the greater of 1 APC (= Rp.200 thousand,

C = Rp.300 thousand, then APC = = 1.5). And if it is greater
than C (= Rp 800 thousand, C = Usd 750 thousand, then APC
== 0.9375), the APC is smaller than 1.

ii. PROSPENSITY TO SAVE

a. Marginal Propensity To Save (MPS)
Can be defined as the ratio between the increase of savings
(S) with increasing disposable income ( ). MPS values can be
calculated by using the formula:

MPS =

b. The Average Propensity To Save (APS)

Shows a comparison between savings (S) with disposable
income ( ). APS value can be calculated using the formula:

APS =

17

c. Example Of Calculating The MPS and APS

MARGINAL AND AVERAGE SAVING PROPENSITY

Disposable
Income
(Yd)

Consumption
Expenditures
(C)

Save (S)

Marginal
Prospensity Save
(MPS)

Average Prospensity
Save (APS)

Example 1 : MPS FIXED

Rp200,000

Rp300,000

-Rp100,000

Rp400,000

Rp450,000

-Rp50,000

Rp600,000

Rp600,000

Rp0

Rp800,000

Rp750,000

Rp50,000

Rp50,000/
Rp200,000 = 0,25
Rp50,000/
Rp200,000 = 0,25
Rp50,000/
Rp200,000 = 0,25

Rp100,000 /
Rp200,000 = -0,5
Rp40,000 /
Rp400,000 =-0,25
Rp0 / Rp600,000 = 0
Rp50,000 /
Rp800,000 = 0,0625

Example 2: MPS MORE SMALL

Rp200,000

Rp300,000

-Rp100,000

Rp400,000

Rp460,000

-Rp60,000

Rp600,000

Rp610,000

Rp0

Rp800,000

Rp750,000

Rp50,000

Rp40,000/ Rp.
200,000 = 0,20
Rp50,000 /
Rp200,000 = 0,25
Rp60,000 /
Rp200,000 = 0,30

Rp100,000 /
Rp200,000 = -0,5
(-Rp60,000) /
Rp400,000 = -0,15
(-Rp10,000) /
Rp600,000 = -0, 017
Rp50.000 /
Rp800,000 = 0.0625

MPS calculation results described in column 4. While in column 5 shows

the calculation to obtain the value of APS. From calculations using formula
APS = S / Y can see that the APS is even greater if disposable income
increases. At first negative, because of households' savings scraping "or"
dissaving ".

18

2. The Relationship Between The Inclination To Consume And Save

i. MPC + MPS = 1
In each MPC and MPS value, ie whether the value is fixed or
changed, MPC + MPS will always equal one.
ii. APC + APS = 1
In each value of APC and APS, namely whether the value is
fixed or changed, APC + MPS will always equal one.
Has explained that disposable income will be the same as
household consumption coupled with household savings. In the
equation:

= C + S
= disposable income
C = Consumption of households
S = Savings of households

3. THE CONSUMPTION FUNCTION

is a curve that describes the nature of the relationship between the level
of household consumption in the economy with the national income (or
disposable income) of the economy. Consumption function is a function
that shows the relationship between consumption (C) income (Y).

C = a + bY
C = the level of national consumption
a = household consumption during zero income
b = marginal consumption propensity (MPC)

19

Y = the level of national income

4. SAVING FUNCTION
Is a curve that describes the nature of the relationship between
the level of household savings in the economy with the national
income (or disposable income) of the economy.

S = -a + (1-b) Yd
S = the level of household savings
a = household consumption during zero income
b = marginal consumption propensity (MPC)
Yd = disposable income

B. THE CALCULATION OF CONSUMPTION

1. Before work spending Daniel of Rp1.500.000/month, after work income
Daniel of Rp5.000.000, and spending of Rp4,500,000, so function
consumption Daniel is
Where:
- a = 1.500.000 (consumption before work y=0)
- C = C1 - C0 = 4.500.000 - 1.500.000 = 3.000.000
- Y = Y1 - Y0 = 5.000.000 - 0 = 5.000.000
Question:
C? (Consumption Function)
Answer:

Formula is

C = a + bY

Before we are working it, we must know MPC or you can called (Marginal
Propensity Consumption), for solve the problem. And above we have know C
and Y, and then first calculate MPC, and the formula is

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MPC =

3,000,000

MPC = 5,000,000 = 0,6

After MPC we known, so function consumption for Daniel we can know is..
C = a + bY / C = a + MPCY
C = Rp1.500.000 + 0,6Y

2. Consumption of the people of state indicated by the equation C = 30 + 0,8Y, if

savings is Rp20, so amount of consumption is..
Where:
C = 30 + 0,8Y
S = 20
Answer:
Formula is

S = -a + (1-b) Yd

20 = -30 + (1-0,8)Yd
20 = -30 + 0,2Yd
0,2Yd = 20 + 30
0,2Yd = 50
50

Yd = 0,2 = 250
Next step for find amount of consumption (C) is we will input value Y into
consumption function
C = 30 + 0,8Y
C = 30 + 0,8(250)
C = 30 + 200
C = 230
So, amount of consumption is C = 230

3. Ms. Tutik have income Rp. 8.000.000/month, with pattern consumption, with

the consumption of stated by the function, C = 1.500.000 + 0,70Y, so

amount of savings Ms. Tutik is

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Where:
Y = 8.000.000
C = 1.500.000 + 0,70Y
Question: S?
Answer:

S = -a + (1-b) Yd
For we know amount of savings (S) first step we have to do is change function
of consumption into savings function, and then into to income value (Y) into to
savings function:
C = 1.500.000 + 0,70Y
So, savings function is
S = -a + (1-b) Y
S = - 1.500.000 + 0,30Y
For find amount of savings (S) Ms. Tutik so we into into Y into consumption
function:
S = -1.500.000 + 0.30 (8.000.000)
S = -1.500.000 + 2.400.000
S = 900.000
So, amount of savings Ms. Tutik is Rp900.000

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CHAPTER IV
CONCLUSION AND SUGGESTION

A. CONCLUSION
1. Consumption is spending on goods and services made by households with the
intention to meet the needs of the person doing the spending.
2. The greater a person's income, the more the level of consumption as well, and
the level of savings will increase. Vice versa, if the level of income a person
gets smaller, then the entire revenue is used for consumption so that the
savings rate of zero. Describes the nature of the relationship between the level
of household consumption in the economy with the national income (or
disposable income) of the economy.
3. Factors affecting the amount of household consumption expenditure, among
others : Economic factors, Demographic Factors, Non-Economic Factors
4. Theory-theory of consumptions are :

Theory J.M Keynes

Theory of Life Cycle

Theory Hypothesis absolute

Theory Permanent Income

Theory Hypothesis Relative

B. SUGGESTION
We make this paper so that readers can better understand the macro-economic
consumption and can implement sciences contained. The paper is structured
sourced from books of basic economics.
We are sorry if there are deficiencies, therefore the compiler requires
criticism and suggestions for improvement of this paper. Hopefully this paper can
be useful for the reader.

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BIBLIOGRAPHY

Dombush, Rudiger, Standly Fisher and Richard Startz, Macroeconomic (8th ed).
New York, N.Y.: McGraw-Hill, 2001

Raharja, PratamaAnd Mandala Manurung.PengantarIlmuEkonomi. Jakarta.

Economy Faculty of University of Indonesia. 2015.

Siamat, Dahlan, Management LembagaKeuangan (EdisiKelima). Jakarta:

Economy Faculty of University of Indonesia, 2005

Suparmoko, Muhammad. PengantarEkonomikaMakro. Yogyakarta. Economy

Faculty of GadjahMada University, 1996

Sukarno, Sadono. PengantarTeoriMakroekonomi. PT Raja GrafindoPersada.

Jakarta. 2000

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