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Questions
What is a ‘consumption function’?
What is meant by the term ‘consumption’?
What is a consumption function (propensity to consume)?
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Solution
A propensity to consume, or the consumption function, states the relationship between the aggregate consumption expenditure and aggregate income. This concept was introduced by Lord Keynes under his psychological law of consumption, which states that as income increases, consumption also increases but at a lesser rate than the increase in income.
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