Saving and Consumption Functions
Total of factor payments, which equals national income, may not be fully spent in buying back all the goods and services at a time. Part of the total factor payments may be held back from the household's expenditure in goods and services. This part that is held back in the household resources from spending in goods and services is referred to as saving. In general, all such resources that are held back from being spent in the economy at any time, form savings. The generic term of saving is unaffected by the mode in which resources are saved. Saving may be done by fmancial firms in the form of cash or certificates (long term claims on cash) or in personal and corporate taxes. It is the effect of saving on the economy in each of these cases that makes a difference. Taxes are forms of saving as they denote transfer of financial resources from households and private sector to government.
KeywordsInterest Rate National Income Corporate Taxis Transfer Payment Consumption Function
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