Answer to Question #203483 in Macroeconomics for Adnan

Question

How we compute consumption

Answer 1

Consumption is the use of goods and services by households.

Consumption is computed by the use of the consumption function.

The theoretical definition of the consumption function is the proportion of income spent on consumption of goods.

Mathematically it can be expressed as;

$C =f(Y)$

It can further be expressed with its two parts, that is the autonomous consumption and induced consumption as shown in the equation below.

$C = C +bY$

Where

$C =$ autonomous consumption

bY = Induced consumption

b = Marginal Propensity to consume.

Y= Level of income

Autonomous consumption is always positive and is not influenced by income because there is always need to consume even in the absence of income.

That's a summary of how consumption is computed.