Consumption, Saving, and Investment Function

 Consumption, the use of goods and services

by households. S= -a + (1-b)Y =
 Consumption Factors:
Where,
 Income ( If Y so C )
S= savings
 Interest Rate ( If i so C ) -a= autonomous savings
 Wealth, Future Estimates, etc. b= MPC
 Consumption Function: Y= income
 According to J.M Keynes, the current  MPS (Marginal Propensity to Save)
level of consumption is related to income. shows additional savings due to an
increase in income that is not consumed.
 MPC (Marginal Propensity to Consume)
is a number that shows the amount of MPC + MPS = 1 Or MPS = 1 - MPC
additional consumption due to changes in
ΔC  APS (Average propensity to Save) is the
income. (MPC= )
ΔY ratio between total savings and total
 APC (Average Propensity to Consume) is S
income. ( APS = )
the ratio between total consumption and Y
C
total disposable income. ( APC= )
Y
C = a + bY

Where,

C= consumption
a= autonomous consumption  Investment is what is spent on goods and
b= marginal propensity to consume services that are not 'consumed', but are
Y= income durable.
 Factors affecting investment:
 Interest rate ( If i so I )
 Operating costs
 Technology changes,etc
 Investment Function:

I = I (i)

Where,

 Saving, whatever is left over after income is  I= Investment

spent on consumption of goods and services.  I= interest rate
 Factors affecting savings:
 Interest Rate
 The level of trust in the bank
 Income level, etc.
 Savings Function :
Y= C+S
S= Y- C
S= Y- (a+bY)