CONSUMPTION, SAVING AND INVESTMENT

AGGREGATE DEMAND
This refers to the total planned or desired spending in the economy as a whole in a given period. It is made
up of consumption demand by individuals, planned investment demand, government demand and demand
by foreigners of the nation’s output.
i. The Consumption Function
The consumption function is the relationship [expressed in mathematical or diagrammatic form] between
planned consumption and other independent variables, particularly income.
The consumption function is one of the most important relations in Macro-economics. Consumption is the
largest single component of aggregate expenditure and if we are to predict the effects of income and
employment of variations in private investment and in government spending, we must know how
consumption varies in response to changes in income. Thus it is important to take a closer look at the
consumption.
Other Determinants
1. Rate of Interest: Is contained in the argument of the classified economists who argued that
rational consumers will save more and consume less if the rate of interest is high.
2. Relative Prices: Influences the aggregate consumption. If relative prices are high, the level of
consumption will be low
3. Capital Gains: Keynes observed that there is a possibility of windfall gains or losses influencing
consumption. He says consumption of the wealth owning group may be extremely susceptible to
unforeseen changes in the money value of their wealth. This is true of the stock minded speculative
economy.
4. Wealth: The possession of liquid assets influences the amount that you have to save. It stems
from the Diminishing Marginal Utility of Wealth. The larger the stock of wealth, the lower its Marginal
Utility and consequently the weaker the desire to add to future wealth by curtailing present consumption.
In this case, the more wealth an individual has, the weaker will be the desire to accumulate still more
savings at that particular time.
5. Money Stock or Liquid Assets: Possession of liquid assets boosts consumption in that they can
be changed into cash and thus consumed.
6. Availability of Consumer Credit: Normally influences spending of the consumer of durables.
7. Attitudes and Expectations of the Consumer: A change in the consumer attitudes will affect
consumer behaviour. The expectations attained by the consumer about income increases will affect the
consumer behaviour. If in the face of price increases they expect further price increases; they shall
increase their purchases further. N.B. These things might be true of an individual, but not the [aggregate]
society.
8. The money Illusion: Some people look at money at the face value. Consumption will be affected
if customers are subject to money illusion. The phenomenon of Money illusion occurs when despite
proportional changes in the prices of goods and services and then their money incomes which keeps real
incomes unchanged, consumers make a change in their real consumption pattern. It is known as Pigou
Effect which talks of real balance. With a change in nominal income, people behave in the same way as
though their real income has gone up.
Suppose price and Money Income increases by 10%, for the families which regard their real income
unchanged and do not suffer from money illusion they would take their real incomes as unchanged and
would only increase their consumption by 10%.
9. Distribution of Income: If the Marginal Propensity to consume among the poor is high, then
redistribution of wealth from the rich to the poor leads to higher consumption.
10. Composition of the Population: In sex and age.
THE KEYNESIAN THEORY OF CONSUMPTION FUNCTION
Consumption theory

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INTRODUCTION
The Keynesian Theory of consumption is that current real disposable income is the most important determinant
of consumption in the short run. Real Income is money income adjusted for inflation. It is a measure of the
quantity of goods and services that consumers have to buy with their income (or budget).
For example, a 10% rise in money income may be matched by a 10% rise in inflation. This means that real
income (the quantity or volume of goods and services that can be bought) has remained constant.
The Keynesian Consumption Function

Disposable Income (Yd) = Gross Income - (Deductions from Direct Taxation + Benefits)
The standard Keynesian consumption function is as follows:
C = a + c Yd where,
C= Consumer expenditure
a = autonomous consumption. This is the level of consumption that would take place even if income was zero. If
an individual's income fell to zero some of his existing spending could be sustained by using savings. This is
known as dis-saving.
c = marginal propensity to consume (mpc). This is the change in consumption divided by the change in income.
Simply, it is the percentage of each additional pound earned that will be spent.
There is a positive relationship between disposable income (Yd) and consumer spending (Ct). The gradient of the
consumption curve gives the marginal propensity to consume. As income rises, so does total consumer demand.
A change in the marginal propensity to consume causes a pivotal change in the consumption function. In this case
the marginal propensity to consume has fallen leading to a fall in consumption at each level of income.
The theory was developed during the Great Depression which plagued Europe and America. During this
time, there was excess capacity and idle resources and no effective demand i.e. people were unemployed
and had no purchasing power. The determination of aggregate demand, then, was of crucial significance
in Keynes analysis.
SAVINGS FUNCTION
Describes the total amount of savings at each level of disposable income. Savings is the difference between
disposable income and consumption.
Savings Function (S) = Y-C
The Savings function is upward sloping, implying that savings is an increasing function of income. The slope of
the saving function is the marginal propensity to save (MPS)

MPS
is the slope of the savings function and can be defined as the ratio of the rate of change in savings to the rate of change in
income. Symbolically, it can be written thus: MPS = S/ Y Since, by theory, income is either saved or consumed, the

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fraction of a unit increase in income that is saved is equal to the unit increase less the fraction that is consumed.
Therefore, symbolically, MPS can also be written thus: MPS = 1 ± MPC

Stemming from this, we can then say that the sum of the fraction of an increase in income that is saved and the
fraction consumed must equal the total increase in income i.e.MPC+MPS = 1 Given a certain income, an individual
will save some of it and use the rest for consumption expenditure. The fraction of the TOTAL income that is spent
on consumption and saved refers to the Average Propensity to Consume (APC) and the Average Propensity to Save (APS)
respectively.

The APC is defined as the ratio of total consumption to total income and is represented symbolically as APC = C/
Y. The APS is defined, pretty much like the APC, as the ratio of total savings to total income. It Is represented
symbolically as APS = S/Y

The Keynesian consumption function is also known as the absolute income hypothesis, as it only bases
consumption on current income and ignores potential future income (or lack of). Criticisms of this assumption
lead to the development of Milton Friedman's permanent income hypothesis and Franco Modigliani's life cycle
hypothesis. More recent theoretical approaches are based on behavioral economics and suggest that a number of
behavioral principles can be taken as microeconomic foundations for a behaviorally-based aggregate consumption
function.
The relationship between MPC AND MPS is given as →

MPS-1+MPC → MPS+MPC-1
SUMMARY
Consumption, savings and investment are the key macroeconomic aggregates which are crucial in determining an
economy’s equilibrium level of employment, and therefore, income. A change in any of these aggregates will have a
multiplier effect on the level of national income. Therefore, to attain the macroeconomic goal of full employment, and
consequently, the attainment of the other goals of price stability, good balance of payment position and a fair rate
of economic growth, these three core aggregates must be stable and equitable
DEFINITIONS
i. Average Propensity to Consume:
The average Propensity to Consume [APC] is defined as the fraction of aggregate national income which
is devoted to consumption. If consumption is denoted by C and income by Y, then:
C
APC = Y
The Average Propensity to Consume decreases in Keynes model as income increases.
ii. Average Propensity to save
The Average Propensity to Save [APS] is defined as the fraction of aggregate national income which is
devoted to savings. Thus if S denotes savings then,
S
APS = Y
In a closed ungoverned economy, where income is spent or saved, APC = APS = 1
iii. Marginal Propensity to Save
The Marginal Propensity to Save is the fraction of an increase in income that is saved. Thus, if
ΔS denoted changes in savings, and ΔY change in income, then,
MPC = ΔC/Δ y
An increase in income is partly consumed and partly saved. Thus
ΔC + ΔS = ΔY
Dividing through by ΔY, we get
Δc
/ΔY + ΔS/ΔY = 1
Therefore ΔC + ΔS = 1, and
S = Y–C

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 ILLUSTRATION

The table below shows the relationships between Disposable income (Y d), Consumption (C) and Saving (S).for
Afro-Asian economy.

Amount in US $ Billion

Disposable Income (Yd) Consumption (C )

(US $bn)
(US $bn)

25 21

20 17

15 13

10 9

5 5

0 1

Using the data above

a) Plot a well labeled line graphs showing the relationship between Consumption(C) and Disposable income (Y d)
(3 marks)

b) From the graph

i. Deduce the autonomous Consumption (1 mark)
ii. Calculate the gradient (slope) of the Consumption line graph (2 marks)
iii. Given that the slope of the Consumption line is the Marginal Propensity to Consume. Deduce an
algebraic expression showing the relationship between Consumption (C) and Disposable income
(Yd). (2marks)
Suppose the Disposable income (Yd) of Afro-Asia increases to 30 Billion US$, Calculate the corresponding level
of Consumption (iii) above. (2 marks)

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 INVESTMENT DEMAND THEORY
Investment refers to the addition of capital stock in an economy. Therefore, it is given by the value of that part of
aggregate output for any given year that takes the form of:
i) Construction of new structures
ii) Changes in business inventories
iii) New capital Investment

Types of Investment
1) Autonomous Investment (Io):This is investment that does not depend on the level of income. It is
determined by exogenous functions e.g inventories, population growth, wealth changes, research e.t.c
2) Induced Investment: Also called endogenous Expenditure, is any expenditure that is determined
by, and thus varies with, economic variables within our theory. This is investment that depends on
income or profit. It is influenced by the factors, which affect income and profit e.g prices, wages, interest
etc Induced investment is a function of income and is given by the equation.
I =Io+λY
Where λ Y = induced Investment
λ=Marginal propensity to invest (MPI)
Io=Autonomous Investment
MPI is the change in investment due to a unit change in income ie change Y/Change in Y,
While Change in PI is the ratio of investment to income ie I/Y
3) Gross and Net Investment
Gross Investment is the total increase in capital stock in a year. Net Investment is the net addition to
capital stock in an economy after deductions capital consumption allowance from gross investment.
4) Intended and unintended Investment
Also called Exogenous expenditure, is any expenditure that is taken as a constant or unaffected by
any economic variables within our theory. For instance, in the simple theory of the determination
of national income, investment is assumed to vary directly with national income. Intended
investment refers to deliberate accumulation of capital stock aimed at achieving a specific objective while
unintended (Involuntary/unplanned) investment is where capital stock accumulated due to unexpected
fall in demand.
5) Private Investment
It is an investment made by private investors in an economy. It is normally made in response to profit
expectations. It depends on the interest rate and the marginal efficiency of capital. It increases as the
interest rate falls. It also increases as the marginal efficiency of capital (MEC) increases.
6) Public Investment
It is investment made by the government and other public enterprises
Determinants of Investment
1) Interest Rates (i)
Investment is inversely related to interest rates
2) Internal Rate of Return (IRR)
Is the rate of interest that equates the present value of a benefits from a project to present value of its
costs? A decision to invest is based on the comparison between IRR and i

if IRR > i Investment is made

IRR< i no investment
IRR= i other factors are considered in whether to or not to invest
3) Expected Future income flows
If the investor expects high profits, then investment will be undertaken and vice versa.
4) Initial cost of capital good and its useful life; If the capital good is affordable then it will be
purchased and vice versa. An investor will purchase a good that is likely to last longer.
5) Degree of Certainty: An investor considers the risks and uncertainties involved in a particular
investment. If they are high he may not invest.
6) Existing Stock of Capital: if it’s large potential investors may be discouraged. Similarly if there is

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 excess or idle capacity in existing capital stock, investment maybe discouraged
7) Level of Income Arise in the level of income in the economy due to rise in money wages abd other
factors prices raises the demand for goods and services and this in turn will induce an increase in
investment.
8) Business Expectations If businessmen are optimistic and confident regarding future returns from
capital goods they invest more.
9) Consumer Demand: If current DD from consumer goods is increasing rapidly more investment will
be made.
10) Liquid Assets: If investors possess large liquid assets then their inducement to invest is high
11) Invention and Innovation : IF INVESTMENTS and technological improvements lead to more
efficient methods of production which reduce costs, the marginal efficiency of capital assets will rise,
hence firms will invest more.
12) New Products, if sale prospects of the new product is high and the expected revenue more than the
costs, investment will be encouraged.
13) Population GROWTH: this implies that there is growing market DD for goods and services that
must be met by increased production hence investment will increase to provide the capital goods
required to increase production
14) Government Policy : Government can encourage investment through reduction in taxes and
provision of social amenities for those investing in particular sectors
15) Political Climate and Stability: If there is political Instability in the economy, investment will
adversely be affected.

iii. The Multiplier

In his theory Keynes asserted that consumption is a function of income, and so it follows that a change in
investment, which we may call ΔI, meaning an increment in I will change Y by more than ΔI. For while
the initial increase in Y, ΔY, will equal ΔI, this change in Y itself produce a change in C, which will
increase Y still further. The final increase in income thus exceeds the initial increase in investment
expenditure which is therefore magnified or “multiplied”. This process is called the multiplier process.
The Operation of the “Multiplier”
The multiplier can be defined as the coefficient (or ratio) relating a change in GDP to the change in
autonomous expenditure that brought it about. This is because the Multiplier can be defined as the
coefficient (or ratio) relating a change in GDP to the change in autonomous expenditure that brought it
about. This is because a change in expenditure, whatever its source, will cause a change in national
income that is greater than the initial change in expenditure.
For example, suppose there is an autonomous increase in investment which comes about as a result of
decisions by businessmen in the construction industry to increase the rate of house building by, say, 100
houses, each costing £1,000 to build, investment will increase by £100,000. Now this will be paid out as
income to workers of all kinds in the building industry, to workers in industries which supply materials
to the building industry, and others who contribute labour or capital or enterprises to the building of the
houses; these people will in turn wish to spend these incomes on a wide range of consumer goods, and
so on. There will thus be a series of further rounds of expenditure, or Secondary Spending, in addition
to the initial primary spending, which constitutes further increases in GDP.
This is because those people whose incomes are increased by the primary increase in autonomous
expenditure will, through their propensity to consume, spend part of their increase in their incomes.
GDP increases through the Expenditure – Income – Expenditure cycle.
THE DETERMINATION OF EQUILIBRIUM NATIONAL INCOME
National income is said to be in equilibrium when there is no tendency for it either to increase or for it to
decrease. The actual National Income achieved at that point is referred to as the equilibrium National
Income.
For there to be equilibrium, firm spending must be equal to firm’s receipts. If this were not the case, the
firms will receive less and lose money until there is no more money in the system. Hence, for there to be

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equilibrium:
Factor Incomes = Consumer Spending
INCOME MODELS
1) The Spendthrift Economy:
This assumes a circular flow of income in a closed economy with no Government sector and no foreign
trade. It also assumes the existence of two sectors, namely the sector of households and the sector of
firms. Firms make the commodities that households consume. They purchase the services of factors of
production from the household that own them, paying wages, rent, interest and profits in return, and then
use the factors to make commodities.
It is assumed firms sell all of their output to households and receive money in return. All of the money
received is in turn paid out to households. Part goes to households that sell factor services to firms, and
the rest is profit paid out as Dividends to the owners of the firm. In short, neither households nor firms
save anything in the spendthrift economy; everything that one group receives goes to buy goods and
services from the other group. Expenditure is the rule of the day!

The input Factor The output Expenditure

Income Approach Approach
Household

Wages payments
Factor Rent for goods Goods and
Services interest and services Services
Profit purchased

Firms

Now, suppose we wish to calculate the Total Value of the economy’s output. We can do this based on
either side of the circular flow shown in the figure above. The output-expenditure approach uses
calculations based on the flows on the right hand side of the figure, while the input-factor income approach
uses calculations based on the flows on the left-hand side of the figure.
2) The Frugal Economy:
In the Frugal economy, households and firms look to the future, and as a result undertake both Saving and
Investment.
SAVING
Saving is income not spent on goods and services for current consumption. Both households and firms
can save. Households save when they elect not to spend part of their current income on goods and services
for consumption. Firms save when they elect not to pay out to their owners some of the profits that they
have earned. Distributed profits are profits actually paid out to the owners of firms, and undistributed
profits are profits held back by firms for their own uses.
INVESTMENT
Investment is defined as the production of goods not for immediate consumption. All such goods a are
called investment goods. They are produced by firms and they may be bought either by firms or by
households. Most investment is done by firms, and firms can invest either in capital goods, such as plant
and equipment, or inventories.
The total investment that occurs in the economy is called Gross Investment. The amount necessary for

7
replacement is called the Capital consumption Allowance and is often loosely referred to as
Depreciation. The remainder is called NET Investment.
The current production of final commodities in the frugal economy can be divided into two sorts of output.
First, there are consumption goods and services actually sold to households. Second, there are investment
goods that consist of capital goods plus inventories of semi-finished commodities still in the hands of
firms. The symbols C and I can be used to stand for currently produced consumption goods and
currently produced investment goods respectively.
In an economy that uses capital goods, as does the Frugal economy, it is helpful to distinguish between
two concepts of National Income (or National Product).
GROSS NATIONAL INCOME (or Gross National Product, GNP); It is the sum of the values of all final
goods produced for consumption and investment, and thus it is also the sum of all factor incomes earned in
the process of producing the National output.
NET NATIONAL INCOME (or Net National Product, NNP) is GNP minus the capital consumption
allowance. NPP is thus a measure of the Net output of the economy after deducting from gross output an
amount necessary to maintain the existing stock of capital intact.
Equilibrium National Income in a Frugal Economy
Saving and investment are examples of two categories of expenditure called withdrawals and injections.
A WITHDRAWAL is any income that is not passed on in the circular flow. Thus if households can earn
income and not spend it on domestically produced goods and services, this is a withdrawal from the
circular flow. Similarly, if firms receive money from the sale of goods and do not distribute it as payments
to factors, this is a withdrawal from the circular flow.
AN INJECTION is an addition to the incomes of domestic firms that does not arise from the expenditure
of domestic households or arise from the spending of domestic firms.
The effects of withdrawals and injections is to interfere with Equilibrium income. Withdrawals by
reducing expenditure exert a contractionary force on national income. If, for example, households decide
to increase their savings and correspondingly reduce the amount they used to spend buying consumption
goods from firms, this reduces the incomes of firms, and reduces the payments they will make to factors of
production. Injections, by raising expenditure, exert an expansionary force on national income. If, for
example, firms sell machines to other firms, their incomes and payments to household for factor services
will rise without there having been an increase in household expenditure.
Thus for equilibrium National Income to exist, firm spending should be equal to firm receipts. Thus,
denoting consumption by C, saving by S and Investment by I, there is equilibrium if:
C+S=C+I
Or
S=I
i.e. there is equilibrium when savings are equal to investments.

H
- savings

F
+ Investments

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To measure the National Income in a frugal economy, through the output and Expenditure approach, the
National Income Accountant includes production of goods for inventories as part of total expenditure since
the firm certainly spends money on the factor services necessary to produce goods for its own inventories.
The accountant calculates the economy’s total output as the actual expenditure on final goods and services
sold, plus the market value of final commodities currently produced and added inventories. This definition
makes total expenditure the same thing as the value of all final commodities produced and thus ensures
that the measured value of expenditure is identical with the value of total output in any economy.
3) THE GOVERNED ECONOMY:
The governed economy contains central authorities often simply called “the government” – who levy taxes
on firms and households and which engages in numerous activities such as defending the country, making
and enforcing the laws, building roads, running schools, and predicting weather.
When the government produces goods and services that households desire such as roads and air traffic
control, it is obviously engaged in a useful activity and is obviously adding to the sum total of valuable
output. The National Income Statistician count as part of the GNP every government expenditure on
goods and services, whether it is to build a scud missile to promote police protection, or to pay a civil
servant to file and re-file papers from a now defunct ministry.
Transfer Payments:
Are any payments made to households by the government that are not made in return for the services of
factors of production i.e. there is no Quid pro Quo. Such payments do not lead directly to any increase in
output and for this reason they are not included in the nation GNP.
Disposable Income:
This is the income which households actually have available to spend or to save. To calculate disposal
income, which is indicated by Ya, the statistician must make several adjustments to GNP.
First, all those elements of the value of output that are not paid out to households must be deducted:
business savings represent receipts by firms from the sale of output that are withheld by firms for their
own uses, and corporation taxes are receipts by firms from the sale of output that are paid over to the
government. Secondly, personal income taxes must be deducted from the income paid to households in
order to obtain the amount households actually have available to spend or save. Finally, it is necessary to
add government transfer payments to households. Although these are not themselves a part of GNP, they
are made available to households to spend and save, and are thus a part of disposable Income. Thus
disposal income is:

GNP minus any part of it that is not actually paid over to households, minus the personal income taxes
paid by households, plus transfer payments received by households.
Real and nominal measures
Output, Expenditure and Income can be valued at current market price in which case we speak, for
example, of money or Nominal NNP, or NNP valued at current prices. Changes from one year to
another are then a compound of changes in physical quantities and prices. Output, Expenditure and
Income can also be valued at the prices ruling in some base year. In this case, each year’s quantity is
priced at its base-year prices and then summed. We then speak, for example, of GDP at constant prices, or
REAL GDP. Changes in constant-price GDP give a measure of real or quantity changes in total output.

Equilibrium Income
In this model, aggregate desired expenditure has three components: Consumption, Investment and
Government Expenditure:
E =C+I+G
However, in the Governed Economy, taxes levied by the government are a second withdrawal. If the
government taxes firms, some of what firms earn is not available to be passed on to households. If the
government taxes households, some of what households earn is not available to be passed on firms.

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Whatever subsequently happens to money raised, taxes withdraw expenditure from the circular flow.
In the Governed Economy, however, government expenditure is a second injection. Such expenditure
creates income for firms that does not arise from the spending of households, and it creates income for
households that does not arise from the spending of firms. Whatever the source of funds, government
spending injects expenditure into the circular flow.

Letting G stand for Government Expenditure, T for Taxes, J for injections and W for withdrawals, we can
say the National Income is in equilibrium when total withdrawals, savings plus taxes, is equal to total
injections, investment plus government expenditure. The equilibrium condition for national income can
thus be written as:
W = J, or S + T = G + I

Government purchases G -
+ S
Personal
Income Taxes
- Taxes on
commodities

+
Taxes on I
Business - +
Government Purchases
From firms

4) Open Economy:

None of the three economies considered so far are engaged in trade with Foreign Countries. Such
economies are often referred to as Closed Economies. In contrast, open economies engage in significant
amounts of foreign trade, so that some of the goods produced at home are sold abroad while some of the
goods sold at home are produced abroad. The model is more applicable in real life.
A mathematical approach to national income equilibrium.
Example
Suppose that
C = 10 + 0.8Y and I=500
Compute equilibrium Income (Y)
Y= C+I
Y= 10 + 0.8y + 500
Y-0.8Y=10+500
(1 -0.8)= 510
0.2y=510
Y=510/0.2
Ý =Kshs 2550

Alternatively
Y = α+βY+I
Y - βY = α+I
Y (1-β) =α+I
Y=α+I/I-β

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 Therefore

Y = 10+500/1-0.8 = 510/0.2= Kshs 2550

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(a) Assume the following information represents the National Income Model of an ‘Utopian’ economy.

Y=C+I+G
C = a + b(Y – T)
T = d + tY
I = IO
G = GO

Where a > O; O < b < 1

d > O; O < t < 1

T = Taxes
I = Investment
G = Government Expenditure

i) Explain the economic interpretation of the parameters a,b,d and t. (4 marks)

ii) Find the equilibrium values of income, consumption and taxes. (8 marks)

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Equilibrium analysis also has applications in the area of national income. A simple Keynesian national
income model may be expressed as follows:
Y = C + IO + GO …………………………………………………… (i)

C = a + bY ………………………………………. (ii)

(a > o, o < b < 1)

Y and C are both endogenous variables since they are determined within the model. Io
And Go , on the other hand, represent exogenously determined investment and government expenditure
respectively. Exogenously determined variables are those whose values are not determined within the
model. C = a + b Y represents a consumption function where a and b stand for autonomous consumption
and the marginal propensity to consume, respectively.

If we substitute equation (ii) into (i) we obtain:

Y = a + bY + Io + Go
(1 – b ) Y = a + Io + Go
_
Equilibrium national income is represented by Y.
_Y = a + Io + Go ………………………….. (iii)
1–b
The equilibrium level of consumption can be obtained by substituting equation (iii) into equation (ii).
_ _
C = a + bY = a + b (a + Io + Go)
1–b
N n  a (1 - b) + b (a + Io + Go)
1–b
A Numerical Example

Assume a simple two sector model where Y = C + I , C = a + bY and I = Io . Assume in addition, that a =
85, b = 0.45 and Io = 55. This implies that Y = a + bY + Io = 85 + 0.45Y + 55

Y – 0.45Y = 140
0.55Y = 140
Y = 255
This simple model can be extended to include government expenditure and foreign trade. It may take the
following general form:

Y = C +I + G+ (X – M)
Where C = a +bY
And M = mo + mY
Mo represents autonomous imports and m represents induced imports (imports dependent on _the level of
income). Equilibrium national income in this case is represented by
Y = a + Io + Go+ Xo - Mo
1 – b + mo
Numerical Example.
Assume that Io = 360, Go= 260, Xo= 320, Mo = 120, a = 210, b = 0.8 and m = 0.2
The equilibrium level of national income can be computed as follows:
Y = 360 + 260 + 320 + 210 – 120  2,575
1 – 0.8 + 0.2

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