i. The MPC is the marginal propensity to consume.
ii. It is the fraction of an increase in income that is consumed.
iii. The MPS is the marginal propensity to save.
iv. It is the fraction of an increase in income that is saved.
v. The MPC and the MPS must always sum to 1 since there are only two things that one can do with one's income - consume and save.

i. The multiplier assumes that those who earn income are likely to spend a proportion of their additional income on consumption.
ii. But in practice, people tend to spend their additional income on other items. Such expenses are known as leakages.

1. The prospective yield from a capital asset.
2. The supply price of a capital asset.

The investment function refers to investment - interest rate relationship. There is a functional and inverse relationship between rate of interest and investment.
I = f (r)
I = Investment (Dependent variable)
r = Rate of interest (Independent variable)

(i) Saving is consumption forgone.
(ii) The portion of the income not spent on consumption is saving.
(iii) If saving rises, consumption will fall.

Formula for calculating APC =\(\frac{C}{Y}\) x 100
= \(\frac{120}{120}\) x = 1 x 100
∴ APC = 100

Accelerator is the ratio between induced investment and an initial change in consumption.
(β) = \(\frac{ΔI}{ΔC}\)

Muliplier is the ratio of the change in national income to change in Investment.
K = \(\frac{ΔY}{ΔI}\)

MPS is the ratio of change in saving to a change in income
MPS = \(\frac{ΔS}{ΔY}\)

APS is the ratio of saving to income
APS = \(\frac{S}{Y}\)

It is the proportion of total income that the consumers save rather the spend on goods.

MPC is the ratio of change in the consumption to the change in income.
MPC = \(\frac{ΔC}{Δ Y}\)

APC is the ratio of consumption expenditure to any particular level of income
APC = \(\frac{C}{Y}\)

 

It is the proportion of disposable income which individuals spend on consumption.

(i) The consumption function or propensity to consume refers to income consumption relationship.
(ii) It is a "functional relationship between two aggregates viz., total consumption and gross national, income".