Question

Explain 'consumption function' with the help of a schedule and diagram.

Answer 1

Consumption function refers to the standard equation of consumption which defines the relationship between consumption and income where consumption value can be derived at each level with the use of income value.

C= c+ bY where c=autonomous consumption, b= marginal propensity to consume, and Y= income.

The autonomous consumption is 60 crores and MPC= 0.6.

Now, derive the consumption from different levels of income.

Income (Y) (Rs. Crores)	Consumption(C) (Rs. Crores) C=c¯+b(Y)C=c¯+b(Y)
0	60(=60+0.6×0)60(=60+0.6×0)
100	120(=60+0.6×100)120(=60+0.6×100)
200	180(=60+0.6×200)180(=60+0.6×200)
300	240(=60+0.6×300)240(=60+0.6×300)
400	300(=60+0.6×400)