The Consumption Function:
Many different factors, including tastes and preferences, income and interxadest rates, determine consumption. For example, if the income of one housexadhold is greater than the income of another, the former is likely to consume more.
Although many factors affect consumption, aggregate income in the most important by far. Consequently, we shall concentrate on the relationship between consumption and income, called the consumption function.
Saving Function:
Saving is that part of income which is not spent on current consumption. The relationship between saving and income is called saving function.
Simply put, saving function (or propensity to save) relates the level of saving to the level of income. It is the ** or tendency of the households to save at a given level of income. Thus, saving ( *) is a function (f) of income (Y).
Symbolically,
