Consumption function

In economics, the consumption function describes a relationship between consumption and [[Disposable and discretionarymics |location=New York |publisher=John Wiley & Sons |edition=Third |year=1976 |isbn=0-471-53572-9 |pages=40–43 |url= }}</ref> The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a government spending multiplier.^[1]

Details

Its simplest form is the linear consumption function used frequently in simple Keynesian models:^[2]

$C=a+b\times Y_{d}$

where $a$ is the autonomous consumption that is independent of disposable income; in other words, consumption when income is zero. The term $b\times Y_{d}$ is the induced consumption that is influenced by the economy's income level. The parameter $b$ is known as the marginal propensity to consume, i.e. the increase in consumption due to an incremental increase in disposable income, since <math> \partial C /

Permanent income hypothesis

Notes

^ Hall, Robert E.; Taylor, John B. (1986). "Consumption and Income". Macroeconomics: Theory, Performance, and Policy. New York: W. W. Norton. pp. 63–67. ISBN 0-393-95398-X.
^ Colander, David (1986). Macroeconomics: Theory and Policy. Glenview: Scott, Foresman and Co. pp. 94–97. ISBN 0-673-16648-1.

External links

An essay examining the strengths and weaknesses of Keynes's theory of consumption

[1] Hall, Robert E.; Taylor, John B. (1986). "Consumption and Income". Macroeconomics: Theory, Performance, and Policy. New York: W. W. Norton. pp. 63–67. ISBN 0-393-95398-X.

[2] Colander, David (1986). Macroeconomics: Theory and Policy. Glenview: Scott, Foresman and Co. pp. 94–97. ISBN 0-673-16648-1.

[1]

[2]

v t e Consumption
Topics	Consumption function Final consumption expenditure Instant gratification Intertemporal consumption Random walk hypothesis Autonomous consumption Induced consumption Conspicuous consumption
Theories	Absolute income hypothesis Life-cycle hypothesis Permanent income hypothesis Random walk model of consumption Relative income hypothesis
Lists	List of largest consumer markets

v t e Consumer behaviour
Concepts	Consumption Autonomous consumption Induced consumption Consumer culture theory Consumer debt Consumer economy Consumer spending
Research types	Consumer choice Consumer economics Consumer neuroscience Consumer product Marketing research
Consumer attributes	Consumer confidence Consumer confusion Consumer ethnocentrism Consumer socialization Consumer's risk Consumption function Cultural consumer Homo economicus
Processes	Consumers' co-operative Consumer-to-business Factory-to-consumer Consumer service Consumerization

Details

Notes

Further reading

External links