Consumption function

In economics, the consumption function shows a relationship between consumption and disposable income.[1][2] 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.[3]

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.

Details

Its simplest form is the linear consumption function. It is used often in simple Keynesian models:[4]

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.

References

Algebraically, this means $C=f(Y_{d})$ where $f\colon \mathbb {R} ^{+}\to \mathbb {R} ^{+}$ is a function that maps levels of disposable income $Y_{d}$ —income after government intervention, such as taxes or transfer payments—into levels of consumption $C$ .
Lindauer, John (1976). Macroeconomics (Third ed.). New York: John Wiley & Sons. pp. 40–43. ISBN 0-471-53572-9.
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.

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

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[1] Algebraically, this means $C=f(Y_{d})$ where $f\colon \mathbb {R} ^{+}\to \mathbb {R} ^{+}$ is a function that maps levels of disposable income $Y_{d}$ —income after government intervention, such as taxes or transfer payments—into levels of consumption $C$ .

[2] Lindauer, John (1976). Macroeconomics (Third ed.). New York: John Wiley & Sons. pp. 40–43. ISBN 0-471-53572-9.

[3] 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.

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

Consumer behaviour
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Research types	Consumer behaviour 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
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Consumption function

Details

References

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