Answer to Question #320043 in Macroeconomics for george

Question

explain       C = 15 + 0.6Yd  

Answer 1

C = 15 + 0.6Yd  

The consumption function is an economic formula that directly connects total consumption and gross national income. The process introduced by the British economist John Maynard Keynes indicates the relationship between income and expenditure and the proportion of income spent on goods.

It suggests that revenue and the rate of increase or decrease in consumer spending are determined by income. This concept is not stable in the long run because income changes and consumption patterns change.

This function is assumed to be balanced, and expenditures determine the income level. For a good concept to last long, it must be durable to reach equilibrium.

In the above equation,

C is the total consumption

15 is the autonomous consumption 

0.6Yd is the disposable income (income after government intervention – e.g. benefits, and taxes).