Principles of Macroeconomics / Unit 9 MAC 0806 short lesson, about 20 seconds
The Consumption Function
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The idea
Consumption depends on disposable income, meaning income after taxes. The relationship is the consumption function, and it has two pieces: a part that happens at any income, and a part that rises with income.
In practice
Written out, consumption equals autonomous consumption plus a fraction of disposable income.
Where people slip
Disposable personal income is not GDP. It is what households have left to spend.
Your place on the trail
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