The amount of money or the part of income which the households spend on buying consumer goods and services is called consumption expenditure. The remaining part of income, which is not spent on consumption, is automatically saved. Thus, saving is that part of disposable income which is not consumed.
By definition there are only two possible uses of disposable income: consumption and saving. So when each individual decides how much to put in use, he or she has automatically decided how much to put to the other use.
The consumption expenditure of any family is influenced by a number of factors such as the size of the family, taste and preferences of its member, their attitude towards thrift, etc. But the single most important factor that governs the family’s consumption expenditure is the amount of its real disposable income. Most of the differences in their real income levels. The families with higher incomes are likely to spend more than those with lower incomes.
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