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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.

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.

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.

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.

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.

The equilibrium output in economy also determines level of employment, given quantities of other factors of production. This means that level of output determined by equality of Y with AD does not necessarily mean level of output at which everyone is employed. The full-employment level of income is that level of income where all factors of production are fully employed in production process. The equilibrium attained at point of equality of Y and AD by itself, does not signify full-employment of resources. Equilibrium only means that if left to itself, level of income in economy will not change even when there is unemployment in economy. The equilibrium level of output may be more or less than full-employment level of output. If it is less than full-employment of output, it is due to fact that demand is not enough to employ all factors of production; this leads to decline in prices in long run. On other hand, if equilibrium level of output is more than full-employment level, it is due to fact that demand is more than level of output produced at full-employment level; this leads to rise in prices in long run. The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.

The equilibrium output in economy also determines level of employment, given quantities of other factors of production. This means that level of output determined by equality of Y with AD does not necessarily mean level of output at which everyone is employed. The full-employment level of income is that level of income where all factors of production are fully employed in production process. The equilibrium attained at point of equality of Y and AD by itself, does not signify full-employment of resources. Equilibrium only means that if left to itself, level of income in economy will not change even when there is unemployment in economy. The equilibrium level of output may be more or less than full-employment level of output. If it is less than full-employment of output, it is due to fact that demand is not enough to employ all factors of production; this leads to decline in prices in long run. On other hand, if equilibrium level of output is more than full-employment level, it is due to fact that demand is more than level of output produced at full-employment level; this leads to rise in prices in long run. The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.

The equilibrium output in economy also determines level of employment, given quantities of other factors of production. This means that level of output determined by equality of Y with AD does not necessarily mean level of output at which everyone is employed. The full-employment level of income is that level of income where all factors of production are fully employed in production process. The equilibrium attained at point of equality of Y and AD by itself, does not signify full-employment of resources. Equilibrium only means that if left to itself, level of income in economy will not change even when there is unemployment in economy. The equilibrium level of output may be more or less than full-employment level of output. If it is less than full-employment of output, it is due to fact that demand is not enough to employ all factors of production; this leads to decline in prices in long run. On other hand, if equilibrium level of output is more than full-employment level, it is due to fact that demand is more than level of output produced at full-employment level; this leads to rise in prices in long run. The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.

The equilibrium output in economy also determines level of employment, given quantities of other factors of production. This means that level of output determined by equality of Y with AD does not necessarily mean level of output at which everyone is employed. The full-employment level of income is that level of income where all factors of production are fully employed in production process. The equilibrium attained at point of equality of Y and AD by itself, does not signify full-employment of resources. Equilibrium only means that if left to itself, level of income in economy will not change even when there is unemployment in economy. The equilibrium level of output may be more or less than full-employment level of output. If it is less than full-employment of output, it is due to fact that demand is not enough to employ all factors of production; this leads to decline in prices in long run. On other hand, if equilibrium level of output is more than full-employment level, it is due to fact that demand is more than level of output produced at full-employment level; this leads to rise in prices in long run. The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.

The equilibrium output in economy also determines level of employment, given quantities of other factors of production. This means that level of output determined by equality of Y with AD does not necessarily mean level of output at which everyone is employed. The full-employment level of income is that level of income where all factors of production are fully employed in production process. The equilibrium attained at point of equality of Y and AD by itself, does not signify full-employment of resources. Equilibrium only means that if left to itself, level of income in economy will not change even when there is unemployment in economy. The equilibrium level of output may be more or less than full-employment level of output. If it is less than full-employment of output, it is due to fact that demand is not enough to employ all factors of production; this leads to decline in prices in long run. On other hand, if equilibrium level of output is more than full-employment level, it is due to fact that demand is more than level of output produced at full-employment level; this leads to rise in prices in long run. The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.