What is the consumption function?

The function of consumption is an attempt to express the mathematical way in which consumer expenditure works. It is based on two types of expenditure: autonomous expenditures that are constant and induced expenditures that differ with the level of income. Critics of consumption function suggest that it does not take into account future income.

There are several ways to express the function of consumption, but all include adding two numbers. One character is simply autonomous expenses. The second number is a one -time income available to consumers with a multiplied share of one -off income, which is spent on the induced expenses, which is expenditure, which varies according to the level of income. This could include goods and services considered luxury, but may also include the purchase of better products used for basic needs.

Autonomous expenditure is expenditure that remains the same regardless of people's income. Theoretically, this would include expenditures on the essentials such as rent or mortgages, basic food and clothing. It is possible that the total andUtonomous expenses will be greater than the total income. This would happen where the economy was in harsh state, considered the overall average, people relying on savings or loans to finance their basic needs.

The function of consumption uses the rate known as the marginal inclination to the consumer. This measures how much of any income is increased by consumers who are likely to spend. Most economists believe that it is not a constant factor, but rather one that decreases with income. This means that although consumer expenditures are increasing with income, it does not increase so quickly. This is because the more money people have, the more likely they feel that their needs are satisfying and have to decide against "unnecessary" additional expenses.

The function of consumption is also known as the hypothesis of absolute income. It was originally developed by economist John Maynard Keynes at the beginning of the 20th century. ModernDie found that it was a reliable guide in the short term, but in the long run it is not so accurate.

There are several theories that try to correct this deficiency. The permanent reception hypothesis takes into account that people are more likely to lend money for "unnecessary" expenses because they expect them to finance them from future income, be it their working life or unexpected, such as inheritance. The life cycle hypothesis works on similar lines and suggests that the annual expenditure of consumer is a stable percentage of the total income, which expects to get into its life, with respect to pension.