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Questions
Briefly explain the shape of the Keynesian consumption function.
What is the shape of Keynesian consumption function?
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Solution
The Keynesian theory of the consumption function, along with its properties, is illustrated in the figure.
The vertical axis is used to plot consumption, while the horizontal axis is used to plot income. Line C, which shows that different levels of consumption expenditure correlate to different levels of income, represents the consumption function. A 45° line drawn from the origin serves as a guide and indicates that each point is equally spaced from the two axes. This indicates that the vertical distance between a location on the horizontal axis and the 45° line will be equal to the distance from the origin to that point. For instance, horizontal distance OB and vertical distance AB are equal at point A in Fig. As a result, the income level can be assessed vertically on the 45° line or horizontally along the OX.
Using the concepts of average and marginal propensities to consume and the C curve, we can
