Like what you see? Have suggestions for improvements? Let us know. Revolutionary War, which was issued against the dictates of Britain, was designed by patriot and silversmith, Paul Revere. Paper money used by the Commonwealth of Massachusetts prior to the U.S. Today, you are likely to spend a great deal of time looking for the new strip mall out on the highway wanting to buy either a replacement remote control for your television or a replacement nozzle for your shower. | personal consumption expenditures | induced expenditures | autonomous expenditures | aggregate expenditures | aggregate expenditures line | derivation, saving line | consumption expenditures determinants | Keynesian model | Keynesian equilibrium | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier | | consumption | consumption expenditures | Keynesian economics | macroeconomics | household sector | disposable income | national income | gross domestic product | saving | abstraction | | consumption schedule | consumption line | induced consumption | autonomous consumption | average propensity to consume | marginal propensity to consume | saving line | derivation, consumption line | slope, consumption line | intercept, consumption line | effective demand | psychological law | This slope is generally assumed and empirically documented to be greater than zero, but less than one (0 ĬONSUMPTION FUNCTION, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2022. If income changes by $1, then consumption changes by $ b. Slope: The slope of the consumption function ( b) measures the change in consumption resulting from a change in income.The two key parameters that characterize the consumption function are slope and intercept. Where: C is consumption expenditures, Y is income (national or disposable), a is the intercept, and b is the slope. The most common form is linear, such as the one presented here: C Where: C is consumption expenditures, Y is income (national or disposable), and f is the notation for a generic, unspecified functional form.ĭepending on the analysis, the actual functional form of the equation can be linear, with a constant slope, or curvilinear, with a changing slope. First, The EquationThe consumption function can represented in a general form as: C Of no small importance, the slope of the consumption function is also the marginal propensity to consume (MPC).
Autonomous consumption is the intercept term. The consumption function makes it easy to divide consumption into two basic types. The primary purpose of the consumption function the basic consumption-income relation for the household sector, which is the foundation of the aggregate expenditures line used in Keynesian economics. In either form, consumption is measured by consumption expenditures and income is measured as disposable income, national income, or occasionally gross domestic product. This function is presented either as a mathematical equation, most often as a simple linear equation, or as the graphical consumption line. It captures the fundamental psychological law put forth by John Maynard Keynes that consumption expenditures by the household sector depend on income and than only a portion of additional income is used for consumption. The consumption function is the starting point in the Keynesian economics analysis of equilibrium output determination. Aggregate expenditures used in Keynesian economics are derived by adding investment, government purchases, and net exports to the consumption function. The two key parameters of the consumption function are the intercept term, which indicates autonomous consumption, and the slope, which is the marginal propensity to consume and indicates induced consumption. This function captures the consumption-income relation that forms one of the key building blocks for Keynesian economics.
The consumption function can be stated as an equation, usually a simple linear equation, or as a diagram designated as the consumption line. dollar, German marc, and Swiss franc tend to be near the top of the list of hard money (also termed hard currency).ĬONSUMPTION FUNCTION: A mathematical relation between consumption and income by the household sector. In modern times, any national currency that is expected to retain its value (and even appreciate in value), and is readily acceptable for most international transactions. HARD MONEY: Historically money that is in the form of precious metals, especially gold. AmosWEB means Economics with a Touch of Whimsy!