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Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 9, Problem 1E
To determine
The reasons for learning consumption and saving functions together.
Expert Solution & Answer
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Answer to Problem 1E
The reason for studying consumption and saving function together is that consumers have only two options either they can spend their income on present consumption or save it for future consumption.
Explanation of Solution
The income that the household sector of the economy earns can be used in two ways.
- First, by purchasing goods and services for present consumption.
- Second, by saving the income for future consumption.
Consumers don't spend all their income on present consumption, they retain something for future as well. Thus, consumption and saving always go together. Any change in one impacts the other and therefore are studied together.
Economics Concept Introduction
Consumption function − It is relationship between consumption and disposable income.
Saving function − It is relationship between saving and disposable income.
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