Consumption function
From Free net encyclopedia
John Maynard Keynes developed a mathematical function to express consumer spending as one term called the "consumption function". In economics, the consumption function calculates the amount of total consumption in an economy. It is made up of autonomous consumption that is not influenced by current income and induced consumption that is influenced by the economy's income level.
The simple consumption function is shown as the linear function:
- C = a + mpc*Y
where C = total consumption, a = autonomous consumption,mpc = the marginal propensity to consume, and Y = disposable income (income after taxes and transfer payments). The second term (mpc*Y) is induced consumption.
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