The correct relationship between income (Y), consumption (C) and savings (S) is

Analyze the question: You are asked for the correct relationship between income (Y), consumption (C) and savings (S).

Explain the concept: In basic economics, people can only do two things with their income (disposable income): spend it on goods and services (consumption) or keep it aside (savings). So:

• Income = Consumption + Savings, i.e. Y = C + S

Rearranging this gives two other useful forms:

• C = Y − S
• S = Y − C

Check each option:

• A. C = Y + S: Wrong. Consumption would be larger than income, which is impossible here. The correct form is C = Y − S.
• B. S = Y + C: Wrong. Savings would exceed income. The correct form is S = Y − C.
• C. S = Y + S: Wrong. This would force Y = 0, so it makes no sense.
• D. Y = C + S: Correct. Income is split between consumption and savings.
• E. Y = C − S: Wrong. The sign of S is wrong. It would mean income is less than consumption, which only happens with dissaving (negative S), not in the standard relationship.

Worked example: If a student's monthly income is ₦50,000 and ₦35,000 is spent, then savings = 50,000 − 35,000 = ₦15,000. Check: 35,000 + 15,000 = 50,000 = Y ✓.

Exam tip: Remember "Income is shared into Consumption and Savings", so Y = C + S. Any option where S or C is added to Y, or where S is subtracted from C, can be eliminated straight away.