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How does the Keynesian theory of consumption work?
The Keynesian theory of consumption shows that the current level of disposable income (DI) is the central factor determining a nation’s consumption. It uses only the current income to predict consumer expenditure. Keynes believed this income-consumption relationship to be a fairly stable one.
What is the role of the consumption function?
The consumption function relates total consumption to the level of income or wealth and, perhaps, other variables. Consumption functions are sometimes defined for individual households, but their main role is determining total national consumption in a macroeconomic model.
What is the relationship between income and consumption?
One of the most debated problems with respect to the nature of the consumption-income relationship has been whether the basic relationship is one of proportionality or, as Keynes thought, and, as the data suggest, one in which the proportion of consumption to income could be expected to decline as income rose.
Where does the concept of consumption come from?
Concept of Consumption: The concept of consumption originates from the concept of demand. Demand is a key concept in both macroeconomics and microeconomics. In the former, consumption is mainly a function of income, whereas in the latter, consumption is primarily, but not exclusively, a function of production.
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