The consumption function and the marginal propensity to consume

1.

The consumption function is the relationship between consumption expenditure and disposable income while the saving function is defined as the relationship between savings and disposable income (Parkin et. al., 2008:563).

A fall in economic growth would reduce disposable income. Once disposable income was reduced, savings would also diminish because people would have less money left at the end of the month and thus would be able to save less of their money.

2.

The Marginal Propensity to Consume is the fraction of a change in disposable income that is consumed while the Marginal Propensity to Save is the fraction of a change in disposable income that is saved (Parkin et. al., 2008:564).

A change is disposable income would be expected to change the both the MPC and MPS. MPC would increase especially because expected future disposable income is more because the economy is expected to recover.

List of References:

· PARKIN, M, POWELL, M, MATTHEW, K, 2008. Economics (7e). Essex, England: Pearson.