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Question

Distinguish between Consumption and Savings function

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Solution

CONSUMPTION FUNCTION SAVING FUNCTION
It is the relationship between consumption expenditure and the level of disposable income. It is the relationship between savings and the level of disposable income
C = f (Yd) , where
C represents the consumption expenditure
Yd represents disposable income
S = -S(bar) + sYd
where
S(bar) is autonomous saving
s represents marginal propensity to save
Yd represents disposable income
It shows how a change in income influences the consumption pattern it shows how change in income influences savings

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