Consumption function - Definition

In economics, the consumption fuction 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 fuction is

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.

See also

• Aggregate Demand
• Measures of national income and output