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Determinants of Consumption Function- 6 Major Points Explained | Macroeconomics

Determinants of Consumption Function

Consumption Function

In economics, the consumption function is the relationship between total consumption and gross national income, also called the Keynesian consumption function. Keynes proposed the concept, arguing it could be used to track and predict aggregate consumption expenditures.

Using the classical consumption function, we find that consumer spending is completely determined by income and changes in income. If this were true, aggregate savings would increase proportionally with GDP growth. In this model, disposable income is modeled as a function of consumer spending, but only on an aggregate level.

A cornerstone of Keynesian macroeconomic theory is the stability of the consumption function, derived in part from Keynes’ Psychological Law of Consumption and contrasted with the volatility of investment. Most post-Keynesians admit that consumption patterns change as income rises, making consumption functions unstable in the long run.

The factors that affect the demand for consumption are called determinants of consumption function. .M Keynes has divided factors influencing the into two parts: Subjective factors (They are the internal factors ) and Objective factors ( They are the external factors)

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