1.) Consumption Function
Consumption is defined as the part of income that is spent on goods and services in order to satisfy their wants and needs.
- In other words, it is the purchase of goods and services and act of using them to satisfy their wants and needs.
Consumption function refers to the functional relationship between total consumption and total income.
- There is positive relationship between consumption and income. It means that higher the income, higher will be consumption and vice versa.
2.) Saving Function
Saving refers to the portion of disposable income that is not spent on consumption. Instead, it is set aside for future use.
- It can be stored in various forms such as savings accounts, investments, or assets.
Saving function refers to the relationship between savings and income. It explains how much households save at different income levels.
- There is positive relationship between saving and income. It means that higher the income, higher will be saving and vice versa.
3.) Investment Function
Investment is defined as the part of income that is spent on purchase of those goods and services, which are used for further production of other goods or earning income.
The investment function shows the relationship between the level of investment by firms and the factors that influence it, such as interest rates and expected returns.
