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

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

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

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

 

(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".

(i) Payment towards past debts
(ii) Purchase of existing wealth
(iii) Import of goods and services
(iv) Non availability of consumer goods
(v) Full employment situation

Motive of precaution
To build a reserve against unforeseen contingencies, (c.g.) accidents
Motive of foresight
The desire to provide for anticipated future needs, (c.g.) Old age
Motive of calculation
The desire to enjoy interest and appreciation.
Income Distribution
According to VKRV Rao if income is equally distributed propensity to consume increases
Price level
When price falls, real income rises; people consume more and save more.
Wage level
Consumption expenditure increases with a rise in wages.

(i) When income incrcases, consumption expenditure also incrcases but by a smaller amount.
(ii) The increased income will be divided in some proportion between consumption expenditure and saving.
(iii) Increase in income always leads to an increase in both consumption and saving.

S. No	Marginal Efficiency of Captial (MEC)	Marginal Efficiency of Investment (MEI)
1.	It is based on given supply price for capital.	It is based on the induced change in the price due to change in the demand for capital.
2.	It represents the rate of return on all successive unit of capital without regard to existing capital.	It shows the rate of return on just those units of capital over and above the existing capital stock
3.	The capital stock is taken on the X axis of diagram.	The amount of investment is taken on the X axis of diagram.
4.	It is a 'Stock' concept.	It is a 'Flow' concept.
5.	It determines the optimum capital stock in an economy at each level of interest rate.	It determines the net investment of the economy at each interest rate given the capital stock.

Law
According to Keynes, "men are disposed as a rule and on the average to increase their consumption as their income increases but not by as much as the increáse in their income".
Propositions
1. When income increases, consumption expenditure also increases, but by a smaller amount
(a) When income increases from 120 to 180; consumption also increases from 120 to 170 but the increase in consumption is less than the increase in income, 10 is saved.
2. The increased income will be divided in some proportion between consumption expenditure and saving
(a) When income increases to 180 and 240, it is divided between consumption (170 and 220) and saving (10 and 20)
3. Incrcascs in income always lead to in incrcase in both consumption and saving
(a) Increases in income to 180) and 240; lead to increased consumption 170 and 220; increased saving 10 and 20.
(b) It is clear from the widening area below the C curve and the saving gap between 45^o line and C curve.
 

 

Y	C	S
120	120	0
180	170	10
240	220	20

(a) Multiplier (K) - ΔI/ΔY

(c) MEC - Duesenberry

(b) Both A and R are true and R is the correct explanation of A

(b) Income distribution

(d) First introduced by - J.M. Keynes