Learn Economics by Dr. Swati Gupta

  SAVING FUNCTION Saving is that part of income which is not consumed because disposable income is either consumed or saved. Thus, Y = C + S S = Y – C where Y = Disposable income, C = Consumption, S = Saving Saving is also a function of income. S = f (Y) Saving function or propensity to save shows the savings of households at a given level of income during a given period of time. Alternately, it shows the different levels of saving at different levels of income in an economy. PROPERTIES OF THE SAVING FUNCTION The propensity to save is of two types: 1- The average propensity to save 2- The marginal propen­sity to save The average propensity to save : Average propensity to save is the proportion of disposable income that is saved. It shows us about the proportion of each income level that people will save i.e., they will not spend on consumption. Mathematically APS= S/Y Where S= Savings and Y= Disposable Income APS rises with increase in income because the proportio...

  Consumption Function The consumption function or propensity to consume shows the "functional relationship between total consumption and the national income." Symbolically, the relationship is represented as C = f (Y), where C is consumption, Y is income, and f is the functional relationship. C is the dependent variable of Y and Y is the independent variable. This relationship is based on this assumption that “all possible influences on consumption” are held constant. Consumption function is the whole schedule which describes the amounts of consumption at various levels of income. The schedule of consumption function shows that when income rises, consumption also rises but not as much as the income. The reason behind it is that a part of the increment in income is saved. PROPERTIES OF THE CONSUMPTION FUNCTION The consumption function has two technical attributes or properties: The Average propensity to Consume: The average propensity to consume may be defined as the ratio...

Keynes’s Theory of Employment: THE PRINCIPLE OF EFFECTIVE DEMAND: AGGREGATE DEMAND AND AGGREGATE SUPPLY Keynes was the first to develop a systematic theory of employment in his book, “General Theory of Employment. Interest and Money” published in 1936. The classical and the neoclassical economists in other words, aggregate supply price is the total cost of production incurred by employing a certain given number of labors. A lmost neglected the problem of unemployment. They regarded unemployment as a temporary phenomenon and assumed that there is always a tendency towards full employment. According to them, when there is unemployment in the economy, then certain economic forces in the free capital economy automatically operate in such a way that the condition of full employment is restored. Keynes challenged the validity of the classical theory of employment as during the period 1929- 33, there occurred great depression in the capitalist countries which caused huge unemploymen...