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The Consumption Function definitions

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  • Consumption Function
    Graphical or mathematical representation showing how household spending changes with disposable income.
  • Disposable Income
    Money available to households after taxes, used for either spending or saving.
  • Autonomous Consumption
    Spending that occurs even when disposable income is zero, covering basic needs like food and shelter.
  • Marginal Propensity to Consume
    Fraction of each additional dollar of disposable income that is spent rather than saved.
  • Marginal Propensity to Save
    Portion of each extra dollar of disposable income that is not spent but set aside.
  • 45 Degree Line
    Reference line on a graph where every dollar of disposable income is used for consumption.
  • Savings
    Amount of disposable income not spent, represented by the gap between the consumption function and the 45 degree line.
  • Dis Savings
    Situation where spending exceeds disposable income, often requiring use of savings or incurring debt.
  • Slope
    Rate at which consumption increases as disposable income rises, equal to the marginal propensity to consume.
  • Y-Intercept
    Value on the consumption function graph indicating spending when disposable income is zero.
  • Consumption Schedule
    Alternative term for the consumption function, often used to describe household spending patterns.
  • Equation of a Line
    Mathematical expression used to model the consumption function, typically in the form C = MPC × YD + b.
  • National Income
    Total earnings in an economy, from which taxes are subtracted to determine disposable income.