Consumption Function Essay Example | Topics and Well Written Essays - 1000 words

Consumption Function - Essay ExampleIn technical language, utilization is a exploit of (determined by) income. This relationship between economic enjoyment and income is termed as consumption function or propensity to consume. Keynes (1936) believes this relationship to be a fairly stable function. At an empirical level, consumption function portrays a schedule of various amount of consumption expenditure corresponding to different levels of income.As can be seen in Table 1, when the consumers income is $0, the consumer spends $60 every from his/her past savings. When the consumers income is $100, the corresponding level of consumption is $150, which indicates that the consumers income is inadequate to meet the expenditure. It is only when the consumers income reaches $250 that the consumption equals income. Until this equilibrium lay consumption exceeds income leading to negative saving, and beyond that point the consumers income exceeds expenditure resulting in positive saving s.In Figure 1, income is measured on the X axis and expenditure on the Y axis. The unity line C= Y, which is basically a 450 line, presents a scenario that consumption corresponds to income at all levels of income. The C curve is a non- analog consumption function based on the assumption that consumption increases by a decreasing amount. Its upward slope to the right indicates that consumption is an increasing function of Income. Types of consumption functionsDepending on the consumption pattern of a consumer, the real(a) functional form of the equation can be linear with a constant slope or curvilinear with a changing slope. 1. A linear consumption function beginning from the origin can be scripted as C = bY where C = Consumption expenditure, Y = Income and b represents the fraction of income which is dog-tired on consumption, and it represents the slope of the consumption function.2. A linear consumption function beginning at an intercept can be written asC = a + bY, where C rep resents consumption expenditure, Y is income, a stands for the intercept and b symbolizes the slope. The intercept a measures the amount of consumption when income is zero. The value of intercept a is positive, and it is conceptually referred to as autonomous consumption. The term autonomous consumption is used to pardon the situation in which the consumers consumption is unrelated to the level of income (Begg et al 1997). As presented in Table 1 as well as Figure 1, when consumers income is zero, the consumption expenditure accounts for $60, which is described as autonomous consumption since it is not related to the level of consumers income.3. A nonlinear consumption function beginning from the origin can be written asC = bYn, where n is a positive constant