Consumption And Investment Functions
In the second chapter we have seen the concept of national income, its measurement, importance and difficulties. The present chapter deals with consumption function and the investment function which play a vital role in influencing national income.
The primary macroeconomic objective is acceleration of growth of national income. We have already seen that national income comprises of consumption goods (C) and investment goods. There is close correlation between investment and national income. The multiplier refers to the change in national income resulting from change in investment. The value of multiplier itself depends on consumption function or marginal propensity to consume. The consumption function is the relationship between consumption expenditure and the national income. The unspent portion of national income is called saving which becomes investment and thereby capital. The relationship between consumption expenditure and the capital expenditure is explained by the principle of accelerator. All these variables are closely interconnected.
In this chapter one can learn the consumption function, psychological law of consumption, investment function, multiplier, accelerator and super multiplier.