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Consumption Function
Graphical representation of the consumption function, where a is autonomous consumption (affected by interest rates, consumer expectations, etc.), b is the marginal propensity to consume and Yd is disposable income.

In economics, the consumption function shows a relationship between consumption and disposable income. It is believed that John Maynard Keynes introduced the idea in macroeconomics in 1936. He used it to develop the idea of a government spending multiplier.

Details

Its simplest form is the linear consumption function. It is used often in simple Keynesian models:

C = a + b \times Y_{d}

where a is the autonomous consumption that is independent of disposable income; in other words, consumption when there is no income. The term b \times Y_{d} is the induced consumption that is influenced by the economy's income level. It is generally assumed that there is no correlation or dependence between Y_{d} and C.

(Undergraduate level discussion of the subject.) (Graduate level discussion of the subject.)

See also

Kids robot.svg In Spanish: Función de consumo para niños

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