In economics , the CONSUMPTION FUNCTION describes a relationship
between consumption and disposable income . The concept is believed
to have been introduced into macroeconomics by
CONTENTS * 1 Details * 2 See also * 3 Notes * 4 Further reading * 5 External links DETAILS Its simplest form is the linear consumption function used frequently in simple Keynesian models: C = a + b Y d {displaystyle C=a+btimes Y_{d}} where a {displaystyle a} is the autonomous consumption that
is independent of disposable income; in other words, consumption when
income is zero. The term b Y d {displaystyle btimes Y_{d}}
is the induced consumption that is influenced by the economy's income
level. The parameter b {displaystyle b} is known as the
marginal propensity to consume , i.e. the increase in consumption due
to an incremental increase in disposable income, since C / Y
d = b {displaystyle partial C/partial Y_{d}=b} . Geometrically,
b {displaystyle b} is the slope of the consumption function. One
of the key assumptions of
Keynes also took note of the tendency for the marginal propensity to
consume to decrease as income increases, i.e. 2 C / Y d
2 R {displaystyle fcolon mathbb {R} to mathbb {R} } is a
function that maps levels of disposable income Y d
{displaystyle Y_{d}} —income after government intervention, such as
taxes or transfer payments—into levels of consumption C
{displaystyle C} .
* ^ Lindauer, John (1976).
FURTHER READING * Poindexter, J. Carl (1976). "The Consumption Function". Macroeconomics. Hinsdale: Dryden Press. pp. 113–141. ISBN 0-03-089419-0 . (Undergraduate level discussion of the subject.) * Sargent, Thomas J. (1979). "The Consumption Function". Macroeconomic Theory. New York: Academic Press. pp. 298–323. ISBN 0-12-619750-4 . (Graduate level discussion of the subject.) EXTERNAL |