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consumption function


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John Maynard Keynes (1883—1946) economist

Milton Friedman (1912—2006) American economist

 

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A function showing how the consumption of an individual or a country as a whole is determined. Individual consumption is an increasing function of income, for individuals whose income is exogenously determined. For individuals who can choose how much to work, consumption and income are jointly determined, but still tend to rise or fall together. Consumption is also affected by many other factors, including size of dependent family, total assets, and factors affecting ‘permanent income’, such as job security and pension prospects. Aggregate consumption is an increasing function of the national total of disposable incomes; it is also affected by factors such as total assets, the age distribution of the population, and the distribution of incomes, if the poor tend to save a lower proportion of their incomes than the rich.

Subjects: Economics.


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