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The Consumption Function definitions

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  • Consumption
    Household spending on goods and services, forming a major part of GDP and influenced by available disposable income.
  • Disposable Income
    Money remaining for households after taxes, available for spending or saving.
  • Consumption Function
    Graphical or mathematical representation showing how household spending changes with disposable income.
  • 45-Degree Line
    Reference line on a graph where every dollar of disposable income is spent, illustrating maximum possible consumption.
  • Savings
    Portion of disposable income not used for consumption, represented by the gap between the 45-degree line and the consumption function.
  • Dis Savings
    Situation where consumption exceeds disposable income, often financed by using past savings or incurring debt.
  • Marginal Propensity to Consume
    Fraction of each additional dollar of disposable income that is spent on consumption; numerically equal to the slope of the consumption function.
  • Marginal Propensity to Save
    Fraction of each additional dollar of disposable income that is saved; complements the marginal propensity to consume.
  • Intercept
    Level of consumption that occurs even when disposable income is zero, reflecting basic needs.
  • Slope
    Rate at which consumption increases as disposable income rises; numerically equal to the marginal propensity to consume.
  • Equation of a Line
    Mathematical form (y = mx + b) used to express the consumption function, linking consumption to disposable income.
  • Consumption Schedule
    Tabular or graphical depiction of the relationship between various levels of disposable income and corresponding consumption.