FUNCTION

FUNCTION C= f (Y) based on the ceteris paribus (other things being same) assumption, as only income consumption relationship is considered and all possible influences on consumption are held constant. In fact, consumption function is a schedule of the various amounts of consumption expenditure corresponding to different levels of income. A hypothetical consumption schedule is given in Table . Table : Income - Consumption Schedule (₹Crores) If we take C = + .8y, then MPC = . Here, if Y = , C = ; if Y = , C = ; if Y = , C = ; if Y = , C = Here, ∆c = - = ∆y = - = MPC = ∆c = ∆y . = In mathematical terms C= a + b Y or C = + .8Y Where a> and b< C= Consumption a= constant or intercept = Income Y Consumption C Savings S - - - - Consumption and Investment Functions Y= income b= MPC (Marginal prosperity to consume) = . = The given table shows that consumption is an increasing function of income because consumption expenditure increases with increase in income. Here it is shown that when income is zero, people spend on consumption out of their past savings because they must eat in order to live (Autonomous Consumption). o x y c = y c S B