Consumption and Saving Functions

Abstract

Aggregate demand, which we write Z, is made up of consumers’ purchases, investment purchases, government expenditure, and perhaps other constituents, e.g. external demand. We must be clear at the outset on the relation between demand Z and income Y on the one hand and output Q on the other. The relation can be viewed as a conceptual one, the circular flow of income in the economy; or it can be put in the framework of the aggregates of national income accounting.