What Is Consumption Function?

The consumption function takes C as the level of consumption, while Y indicates national income. In the two sector economy, the relationship between consumption and income can be expressed as function: C = C (Y), which is called the consumption function.

Generally speaking, the level of consumption will change with the change of income. The larger the income, the higher the consumption. However, with the increase of people's income, the increase of consumption will not keep up with the increase of income.