The consumption function also called as propensity to consume refers to income consumption relationship. It is functional relationship between Total consumption and Gross national income. The consumption function may be represented as follow.

C = f (Y). where C is consumption, Y is income and f is the functional relationship.

In fact, consumption function is a schedule of the various amounts of consumption expenditure corresponding to different levels of income.

(a) Investment function: Generally, investment means buying shares, stocks, bonds, securities existing in stock market. According to J.M.Keynes, investment refers to real investment which adds to capital stock It leads to increase in level of income and production by increasing the production and purchase of capital goods.

Investment is the production or acquisition of real capital assets during any period of time. Capital and investment are related to each other through net investment. As the income of the community increases, consumption also increases. But, it does not increase in the same proportion. There will be a gap between income and consumption. This gap must be filled by increasing employment and production. For this, investment is needed.

The decision to invest in a new capital asset depends on whether the expected rate of return on the new investment is equal to or greater or less than the rate of interest to be paid on the funds needed to purchase this asset. It is only when the expected rate of return is higher than the interest rate that investment will be made in acquiring new capital assets.

In reality, there are three factors that are taken into consideration while making any investment decision. 

They are as follows:

1. The cost of capital asset. 

2. The expected rate of returns during its lifetime. 

3. Market rate of interest. 

(b) Equality between saving and investment: The equality between saving and investment is through the mechanism of rate of interest. If the saving is more than investment, the rate of interest falls, investment increases and saving comes down. When the saving is less than investment, rate of interest increases and investment comes down and the savings gets increased to the level of investment.

According to Keynes, Y = C + S and Y = C + I, therefore C + S = C + I, so S = I 

Y-income, C-consumption, S-saving, I-investment.