A __________ function describes the functional relationship between consumption and income. |
Income Production Consumption Cost |
Consumption |
A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes. Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income, it is called autonomous consumption. We can describe this function as: C = c + bY where, c = autonomous consumption, b = MPC, and Y = Income |