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Consumption Function

  Consumption treated as a function of income. The consumption function is C-f(y), where C is consumption expenditure and Y is income. The analysis of John Maynard Keynes (1883 - 1943) focused on the absolute level of current income as the determinant of consumption expenditure. Others have introduced modifications, such as the relative income hypothesis of James Duesenberry, the life-cycle hypothesis of Franco Modigliani, or the permanent income hypothesis of Milton Friedman. Each of these concepts analyses the relationship between household consumption expenditure and income and then aggregates it for the economy. TF

Further reading Milton Friedman, A Theory of the Consumption Function.



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