The theory of income determination as given by John Maynard Keynes is based on the assumption that all the variables in the theory are Ex-ante. The theory of income determination is based on the analysis of Aggregate Demand and Aggregate Supply. The most important determinant of consumption demand is household income. A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes. Even if income is zero, there is some consumption. This level of consumption is independent of income. There is another component of the consumption function which depends on the marginal propensity to consume (MPC) and hence is a dependent variable. While the average propensity to consume (APC) is the consumption per unit of income, the marginal propensity to consume is the rate of change in consumption due to income change.

The other part of the household income is savings. It is that part of the income which is not consumed. The average propensity to save (APS) is savings per unit of income. APS can be negative. It is when there is some consumption even at zero level of income or till that level of income, where consumption is greater than Income.