Consumption occurs when households use goods and services to fulfill their needs. The consumption function basically shows how disposable income and household consumption relate. Consumption stands to increase with an increase in disposable income. However, the increase in consumption is not as much as that of income.
The consumption function is given as;
C= ӓ+ βYd where C= consumption spending, ӓ=autonomous consumption, β=marginal propensity to consume, and Yd= disposable income (Johnson, 2017)
Autonomous consumption= $20 million, MPC=0.8 and disposable income = $100 billion
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