Propensities

The functional relationship between saving and national income is known as Saving Function. It shows the savings of households during a given period of time at a given income level. In alternate terms, the savings function shows different savings levels at different income levels in an economy. Saving function is also known as Propensity to Save, and is represented by S = f(Y). The two types of Propensities to Save are Average Propensity to Save (APS) and Marginal Propensity to Save (MPS).1. Average Propensity to Save…

The functional relationship between consumption and national income is known as Consumption Function. It represents the willingness of households to purchase goods and services at a given income level during a given period of time. It is represented as C = f(Y). The consumption function is a psychological concept that shows consumption levels at different income levels in an economy. Besides, it is influenced by subjective factors like consumer habits, preferences, etc. The two types of Propensities to Consume are Average…