CONCEPT OF CONSUMPTION FUNCTION

One of the important tools of the Keynesian Macroeconomics is the consumption function. Consumption function is simply a name for the general income-consumption relationship embodied in the Psychological law of Consumption given by Keynes. Keynesian general theory of employment is based on the consumption function. In economics, consumption means the amount spent on consumption at a given level of income. There is direct relationship between income and consumption. If income increases, the consumption also increases and vice-versa. The consumption function implies the whole of the schedule showing consumption expenditure at various level of income of the people. Thus, consumption function is also termed as ‘Propensity to Consume’. In short, the propensity to consume shows how the consumption expenditure varies with the change in income. According to K.K. Kurihara- “The propensity to consume is a schedule of expenditure at various income level”.

In the Keynesian theory, we are concerned not with the consumption of an individual consumer but with the sum of total consumption spending by all the individuals. The consumption function or propensity to consume refers to income-consumption relationship. It is a “functional relationship between two aggregates, i.e., total consumption and gross national income”. So, consumption is function of income. Because, the consumption changes with the change in income level. Thus, consumption depends upon the income level of the people. Symbolically, the consumption function is expressed as, C=f(Y), where, C is the consumption expenditure, Y is income and f is a function of (functional relationship)

So, the functional relationship between income and consumption is the consumption function. The consumption expenditure increases as increase in income. But consumption expenditure does not increase proportionately to the increase in the income. Consumption expenditure increases less than the proportionate increases in income. It is because people want to save part of income. Therefore, propensity to consume decreases as income increases because consumption will be less in proportion in relation to income.

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