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The formula for today's consumption is defined as:

$$C = Y - T -S^P $$

That being said the consumption of tomorrow is:

$$C' = Y' - T' + S^P(1+r)$$

Could anyone possibly explain to me why the saving becomes positive in tomorrow's consumption formula?

Thank you very much for your help

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  • $\begingroup$ As an economist, I do not like this phrase, but "a penny saved is a penny earned." $\endgroup$ – Giskard May 21 '19 at 20:44
  • $\begingroup$ Thank you for your quick reply, so $𝑆𝑃(1+𝑟)$ is the amount saved today (if this is the case how come)? $\endgroup$ – Fozoro May 21 '19 at 20:46
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    $\begingroup$ Do these formulae relate to a 2-period model (in which there is no point in saving in period 2)? If there are more than 2 periods then one might expect $C' = Y' - T' + S^P(1+r) - S'$. $\endgroup$ – Adam Bailey May 21 '19 at 21:29

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