{"id":7639,"date":"2017-12-30T18:59:47","date_gmt":"2017-12-30T18:59:47","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-macroeconomics\/?post_type=chapter&#038;p=7639"},"modified":"2018-06-02T03:19:06","modified_gmt":"2018-06-02T03:19:06","slug":"aggregate-expenditure-consumption","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/oldwestbury-wm-macroeconomics\/chapter\/aggregate-expenditure-consumption\/","title":{"raw":"Aggregate Expenditure: Consumption","rendered":"Aggregate Expenditure: Consumption"},"content":{"raw":"<div id=\"post-369\" class=\"post-369 chapter type-chapter status-publish hentry type-1\">\r\n<div class=\"entry-content\"><section id=\"fs-idm190331616\"><section id=\"fs-idm65474512\">\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li>Explain and graph the consumption function<\/li>\r\n \t<li>Explain what would cause the consumption function to grow steeper or flatter, or to shift up or down<\/li>\r\n<\/ul>\r\n<\/div>\r\n<h2 id=\"fs-idp17604752\"><strong>Aggregate Expenditure: <span style=\"text-decoration: underline;\">Consumption<\/span> as a Function of National Income<\/strong><\/h2>\r\n<p id=\"fs-idp765136\"><span style=\"color: #333333;\">Keynes observed that consumption expenditure depends primarily on personal disposable income, i.e. one's take home pay. Let\u2019s examine this relationship in more detail.\u00a0People can do two things with their income: they can\u00a0consume it or they can save it. (For the moment, let\u2019s ignore the need to pay taxes with some of it). Each person who receives a raise in income faces this choice. Let\u2019s define\u00a0the <strong><span class=\"no-emphasis\">marginal propensity to consume (MPC) <\/span><\/strong><span class=\"no-emphasis\">a<\/span>s the share (or percentage) of the additional income a person decides to consume (or spend).\u00a0Similarly, the\u00a0<strong><span class=\"no-emphasis\">marginal propensity to save (MPS)<\/span><\/strong> is the share of the additional income the\u00a0person decides to save. Since the only options are to consume or save income, it must always hold true that:<\/span><\/p>\r\n\r\n<div class=\"MathJax_Display\" style=\"text-align: center;\"><span id=\"MathJax-Element-41-Frame\" class=\"MathJax\"><span id=\"MathJax-Span-869\" class=\"math\"><span id=\"MathJax-Span-870\" class=\"mrow\"><span id=\"MathJax-Span-871\" class=\"semantics\"><span id=\"MathJax-Span-872\" class=\"mrow\"><span id=\"MathJax-Span-873\" class=\"mtext\">MPC\u00a0+\u00a0MPS\u00a0=\u00a01<\/span><\/span><\/span><\/span><\/span><\/span><\/div>\r\n<p id=\"fs-idm8803472\">For example, if the marginal propensity to consume out of the marginal amount of income earned is 0.9, then the marginal propensity to save is 0.1.<\/p>\r\n<p id=\"fs-idm31674640\"><span style=\"color: #333333;\">With this relationship in mind, consider the relationship among income, consumption, and savings shown in Table 1.<\/span><\/p>\r\n\r\n<table id=\"Table_E_01\" summary=\"The table shows the income, consumption, and savings data needed to calculate consumption. Column 1 lists Income. Column 2 lists Consumption. Column 3 lists Savings. Row 1: $0 (in income); $600 (in consumption); \u2013$600 (in savings). Row 2: $1,000 (in income); $1,400 (in consumption); \u2013$400 (in savings). Row 3: $2,000 (in income); $2,200 (in consumption); \u2013$200 (in savings). Row 4: $3,000 (in income); $3,000 (in consumption); $0 (in savings). Row 5: $4,000 (in income); $3,800 (in consumption); $200 (in savings). Row 6: $5,000 (in income); $4,600 (in consumption); $400 (in savings). Row 7: $6,000 (in income); $5,400 (in consumption); $600 (in savings). Row 8: $7,000 (in income); $6,200 (in consumption); $800 (in savings). Row 9: $8,000 (in income); $7,000 (in consumption); $1,000 (in savings). Row 10: $9,000 (in income); $7,800 (in consumption); $1,200 (in savings).\"><caption><span style=\"color: #333333;\">Table 1. The Consumption Function<\/span><\/caption>\r\n<thead>\r\n<tr>\r\n<th><span style=\"color: #333333;\">Income<\/span><\/th>\r\n<th><span style=\"color: #333333;\">Consumption<\/span><\/th>\r\n<th><span style=\"color: #333333;\">Savings<\/span><\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$0<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$600<\/span><\/td>\r\n<td><span style=\"color: #333333;\">\u2013$600<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$1,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$1,400<\/span><\/td>\r\n<td><span style=\"color: #333333;\">\u2013$400<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$2,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$2,200<\/span><\/td>\r\n<td><span style=\"color: #333333;\">\u2013$200<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$3,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$3,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$0<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$4,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$3,800<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$200<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$5,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$4,600<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$400<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$6,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$5,400<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$600<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$7,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$6,200<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$800<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$8,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$7,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$1,000<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><span style=\"color: #333333;\">$9,000<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$7,800<\/span><\/td>\r\n<td><span style=\"color: #333333;\">$1,200<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nIn Table 1, for each increase in income of $1000, consumption increases by $800. Thus, the marginal propensity to consumer (MPC) is 0.80. Any additional income which isn\u2019t spent is saved, so for each increase in income of $1000, saving increases by $200. The MPS is 0.20.\r\n\r\n<\/section><\/section><\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7566\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7567\r\n\r\n<\/div>\r\nThe pattern of consumption shown in Table 1\u00a0is plotted in <span style=\"color: #333333;\">Figure 1. The relationship between income and consumption, whether in tabular or graphical form is called the <strong>consumption function<\/strong>. Both the table and figure illustrate a typical consumption function. There are a couple of features to observe. First, consumption expenditure increases as income does. For every increase in income, consumption increases by the MPC times that increase in income. Thus, the slope of the consumption function is the MPC. Second, at low levels of income, consumption is greater than income. Even if income were zero, people would have to consume somet<\/span>hing.\u00a0We call the level of consumption when income is zero <strong>autonomous consumption<\/strong>, since it shows the amount of consumption independent of income.\u00a0In this example, consumption would be $600 even if income were zero. Thus, to calculate consumptio<span style=\"color: #333333;\">n at any level of income, multiply the income level by 0.8, for the marginal propensity to consume, and add $600, for the amount that would be consumed even if income was zero.<\/span>\r\n<p style=\"text-align: center;\">C = 600 + 0.8*Y<\/p>\r\n\r\n\r\n[caption id=\"attachment_10317\" align=\"aligncenter\" width=\"497\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/2043\/2017\/12\/26144519\/Screen-Shot-2018-04-26-at-9.44.51-AM.png\"><img class=\"wp-image-10317 \" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/2043\/2017\/12\/26144519\/Screen-Shot-2018-04-26-at-9.44.51-AM.png\" alt=\"The graph shows an upward-sloping line representative of the consumption function.\" width=\"497\" height=\"380\" \/><\/a> <strong>Figure 1. The Consumption Function.<\/strong> In the expenditure-output model, how does consumption increase with the level of national income? Output on the horizontal axis is conceptually the same as national income, since the value of all final output that is produced and sold must be income to someone, somewhere in the economy. At a national income level of zero, $600 is consumed. Then, each time income rises by $1,000, consumption rises by $800, because in this example, the marginal propensity to consume is 0.8.[\/caption]\r\n\r\n<span style=\"background-color: #ffffff;\">A change in the marginal propensity to consume will change the slope of the consumption function. An increase in the MPC steepens the consumption function; a decrease in the MPC flattens it.<\/span>\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7568\r\n\r\n<\/div>\r\nA number of factors other than income can also cause the entire consumption function to shift. These factors were summarized in the earlier discussion of consumption. For example, changes in consumer expectations about the future, or changes in household wealth would cause the consumption function to shift up or down to a\u00a0a new consumption function that is parallel to the original one.\r\n<div class=\"textbox examples\">\r\n<h3>Watch It<\/h3>\r\nWatch the selected three-minute clip from this video to take another look at the consumption function and the marginal propensity to consume. Note that his graph is a rough sketch and not drawn entirely to scale.\r\n\r\n<script type=\"text\/javascript\" src=\"\/\/static.3playmedia.com\/p\/projects\/20361\/files\/2587544\/plugins\/11085.js\"><\/script><script src=\"https:\/\/www.youtube.com\/iframe_api\" type=\"text\/javascript\"><\/script>\r\n<iframe id=\"myytplayer\" src=\"https:\/\/www.youtube.com\/embed\/_iuj76W76Ts?enablejsapi=1;start=02&amp;end=217&amp;autoplay=0\" width=\"800\" height=\"470\" frameborder=\"0\"><\/iframe>\r\n\r\nWatch this next video for more practice in graphing the consumption function. Then take it a step further to analyze what kind of impact an increase in income will have on consumer spending.\r\n\r\n<script type=\"text\/javascript\" src=\"\/\/static.3playmedia.com\/p\/projects\/20361\/files\/2587543\/plugins\/11116.js\"><\/script>v<script src=\"https:\/\/www.youtube.com\/iframe_api\" type=\"text\/javascript\"><\/script>\r\n<iframe id=\"myytplayer2\" src=\"https:\/\/www.youtube.com\/embed\/G5XQB7vZqvA?enablejsapi=1\" width=\"800\" height=\"470\" frameborder=\"0\"><\/iframe>\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nThese questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.\r\n\r\n[ohm_question sameseed=1]153126-153127-153128[\/ohm_question]\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nThese questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.\r\n\r\n[ohm_question sameseed=1]153129-153130-153131[\/ohm_question]\r\n\r\n<\/div>\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Glossary<\/h3>\r\n[glossary-page]\r\n\r\n[glossary-term]autonomous consumption: [\/glossary-term][glossary-definition]The amount consumers spend if their income was zero; i.e. consumer spending which is caused by something other than income, for example, borrowing[\/glossary-definition]\r\n\r\n[glossary-term]consumption function: [\/glossary-term][glossary-definition]graphical relationship between national income and consumption expenditure; algebraically: C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income[\/glossary-definition]\r\n\r\n[glossary-term]marginal propensity to consume: [\/glossary-term]\r\n[glossary-definition]fraction of any change in income which is spent; algebraically MPC =\u00a0<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>C\/<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>Y[\/glossary-definition]\r\n\r\n[glossary-term]marginal propensity to save: [\/glossary-term][glossary-definition]fraction of any change in income which is saved; algebraically MPS =\u00a0<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>S\/<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>Y[\/glossary-definition][\/glossary-page]\r\n\r\n<\/div>","rendered":"<div id=\"post-369\" class=\"post-369 chapter type-chapter status-publish hentry type-1\">\n<div class=\"entry-content\">\n<section id=\"fs-idm190331616\">\n<section id=\"fs-idm65474512\">\n<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Explain and graph the consumption function<\/li>\n<li>Explain what would cause the consumption function to grow steeper or flatter, or to shift up or down<\/li>\n<\/ul>\n<\/div>\n<h2 id=\"fs-idp17604752\"><strong>Aggregate Expenditure: <span style=\"text-decoration: underline;\">Consumption<\/span> as a Function of National Income<\/strong><\/h2>\n<p id=\"fs-idp765136\"><span style=\"color: #333333;\">Keynes observed that consumption expenditure depends primarily on personal disposable income, i.e. one&#8217;s take home pay. Let\u2019s examine this relationship in more detail.\u00a0People can do two things with their income: they can\u00a0consume it or they can save it. (For the moment, let\u2019s ignore the need to pay taxes with some of it). Each person who receives a raise in income faces this choice. Let\u2019s define\u00a0the <strong><span class=\"no-emphasis\">marginal propensity to consume (MPC) <\/span><\/strong><span class=\"no-emphasis\">a<\/span>s the share (or percentage) of the additional income a person decides to consume (or spend).\u00a0Similarly, the\u00a0<strong><span class=\"no-emphasis\">marginal propensity to save (MPS)<\/span><\/strong> is the share of the additional income the\u00a0person decides to save. Since the only options are to consume or save income, it must always hold true that:<\/span><\/p>\n<div class=\"MathJax_Display\" style=\"text-align: center;\"><span id=\"MathJax-Element-41-Frame\" class=\"MathJax\"><span id=\"MathJax-Span-869\" class=\"math\"><span id=\"MathJax-Span-870\" class=\"mrow\"><span id=\"MathJax-Span-871\" class=\"semantics\"><span id=\"MathJax-Span-872\" class=\"mrow\"><span id=\"MathJax-Span-873\" class=\"mtext\">MPC\u00a0+\u00a0MPS\u00a0=\u00a01<\/span><\/span><\/span><\/span><\/span><\/span><\/div>\n<p id=\"fs-idm8803472\">For example, if the marginal propensity to consume out of the marginal amount of income earned is 0.9, then the marginal propensity to save is 0.1.<\/p>\n<p id=\"fs-idm31674640\"><span style=\"color: #333333;\">With this relationship in mind, consider the relationship among income, consumption, and savings shown in Table 1.<\/span><\/p>\n<table id=\"Table_E_01\" summary=\"The table shows the income, consumption, and savings data needed to calculate consumption. Column 1 lists Income. Column 2 lists Consumption. Column 3 lists Savings. Row 1: $0 (in income); $600 (in consumption); \u2013$600 (in savings). Row 2: $1,000 (in income); $1,400 (in consumption); \u2013$400 (in savings). Row 3: $2,000 (in income); $2,200 (in consumption); \u2013$200 (in savings). Row 4: $3,000 (in income); $3,000 (in consumption); $0 (in savings). Row 5: $4,000 (in income); $3,800 (in consumption); $200 (in savings). Row 6: $5,000 (in income); $4,600 (in consumption); $400 (in savings). Row 7: $6,000 (in income); $5,400 (in consumption); $600 (in savings). Row 8: $7,000 (in income); $6,200 (in consumption); $800 (in savings). Row 9: $8,000 (in income); $7,000 (in consumption); $1,000 (in savings). Row 10: $9,000 (in income); $7,800 (in consumption); $1,200 (in savings).\">\n<caption><span style=\"color: #333333;\">Table 1. The Consumption Function<\/span><\/caption>\n<thead>\n<tr>\n<th><span style=\"color: #333333;\">Income<\/span><\/th>\n<th><span style=\"color: #333333;\">Consumption<\/span><\/th>\n<th><span style=\"color: #333333;\">Savings<\/span><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><span style=\"color: #333333;\">$0<\/span><\/td>\n<td><span style=\"color: #333333;\">$600<\/span><\/td>\n<td><span style=\"color: #333333;\">\u2013$600<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$1,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$1,400<\/span><\/td>\n<td><span style=\"color: #333333;\">\u2013$400<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$2,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$2,200<\/span><\/td>\n<td><span style=\"color: #333333;\">\u2013$200<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$3,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$3,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$0<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$4,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$3,800<\/span><\/td>\n<td><span style=\"color: #333333;\">$200<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$5,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$4,600<\/span><\/td>\n<td><span style=\"color: #333333;\">$400<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$6,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$5,400<\/span><\/td>\n<td><span style=\"color: #333333;\">$600<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$7,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$6,200<\/span><\/td>\n<td><span style=\"color: #333333;\">$800<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$8,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$7,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$1,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"color: #333333;\">$9,000<\/span><\/td>\n<td><span style=\"color: #333333;\">$7,800<\/span><\/td>\n<td><span style=\"color: #333333;\">$1,200<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>In Table 1, for each increase in income of $1000, consumption increases by $800. Thus, the marginal propensity to consumer (MPC) is 0.80. Any additional income which isn\u2019t spent is saved, so for each increase in income of $1000, saving increases by $200. The MPS is 0.20.<\/p>\n<\/section>\n<\/section>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"lumen_assessment_7566\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7566&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7566\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><br \/>\n\t<iframe id=\"lumen_assessment_7567\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7567&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7567\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<p>The pattern of consumption shown in Table 1\u00a0is plotted in <span style=\"color: #333333;\">Figure 1. The relationship between income and consumption, whether in tabular or graphical form is called the <strong>consumption function<\/strong>. Both the table and figure illustrate a typical consumption function. There are a couple of features to observe. First, consumption expenditure increases as income does. For every increase in income, consumption increases by the MPC times that increase in income. Thus, the slope of the consumption function is the MPC. Second, at low levels of income, consumption is greater than income. Even if income were zero, people would have to consume somet<\/span>hing.\u00a0We call the level of consumption when income is zero <strong>autonomous consumption<\/strong>, since it shows the amount of consumption independent of income.\u00a0In this example, consumption would be $600 even if income were zero. Thus, to calculate consumptio<span style=\"color: #333333;\">n at any level of income, multiply the income level by 0.8, for the marginal propensity to consume, and add $600, for the amount that would be consumed even if income was zero.<\/span><\/p>\n<p style=\"text-align: center;\">C = 600 + 0.8*Y<\/p>\n<div id=\"attachment_10317\" style=\"width: 507px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/2043\/2017\/12\/26144519\/Screen-Shot-2018-04-26-at-9.44.51-AM.png\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-10317\" class=\"wp-image-10317\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/2043\/2017\/12\/26144519\/Screen-Shot-2018-04-26-at-9.44.51-AM.png\" alt=\"The graph shows an upward-sloping line representative of the consumption function.\" width=\"497\" height=\"380\" \/><\/a><\/p>\n<p id=\"caption-attachment-10317\" class=\"wp-caption-text\"><strong>Figure 1. The Consumption Function.<\/strong> In the expenditure-output model, how does consumption increase with the level of national income? Output on the horizontal axis is conceptually the same as national income, since the value of all final output that is produced and sold must be income to someone, somewhere in the economy. At a national income level of zero, $600 is consumed. Then, each time income rises by $1,000, consumption rises by $800, because in this example, the marginal propensity to consume is 0.8.<\/p>\n<\/div>\n<p><span style=\"background-color: #ffffff;\">A change in the marginal propensity to consume will change the slope of the consumption function. An increase in the MPC steepens the consumption function; a decrease in the MPC flattens it.<\/span><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"lumen_assessment_7568\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7568&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7568\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<p>A number of factors other than income can also cause the entire consumption function to shift. These factors were summarized in the earlier discussion of consumption. For example, changes in consumer expectations about the future, or changes in household wealth would cause the consumption function to shift up or down to a\u00a0a new consumption function that is parallel to the original one.<\/p>\n<div class=\"textbox examples\">\n<h3>Watch It<\/h3>\n<p>Watch the selected three-minute clip from this video to take another look at the consumption function and the marginal propensity to consume. Note that his graph is a rough sketch and not drawn entirely to scale.<\/p>\n<p><script type=\"text\/javascript\" src=\"\/\/static.3playmedia.com\/p\/projects\/20361\/files\/2587544\/plugins\/11085.js\"><\/script><script src=\"https:\/\/www.youtube.com\/iframe_api\" type=\"text\/javascript\"><\/script><br \/>\n<iframe loading=\"lazy\" id=\"myytplayer\" src=\"https:\/\/www.youtube.com\/embed\/_iuj76W76Ts?enablejsapi=1;start=02&amp;end=217&amp;autoplay=0\" width=\"800\" height=\"470\" frameborder=\"0\"><\/iframe><\/p>\n<p>Watch this next video for more practice in graphing the consumption function. Then take it a step further to analyze what kind of impact an increase in income will have on consumer spending.<\/p>\n<p><script type=\"text\/javascript\" src=\"\/\/static.3playmedia.com\/p\/projects\/20361\/files\/2587543\/plugins\/11116.js\"><\/script>v<script src=\"https:\/\/www.youtube.com\/iframe_api\" type=\"text\/javascript\"><\/script><br \/>\n<iframe loading=\"lazy\" id=\"myytplayer2\" src=\"https:\/\/www.youtube.com\/embed\/G5XQB7vZqvA?enablejsapi=1\" width=\"800\" height=\"470\" frameborder=\"0\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>These questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.<\/p>\n<p><iframe loading=\"lazy\" id=\"ohm153126\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=153126-153127-153128&theme=oea&iframe_resize_id=ohm153126&sameseed=1&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>These questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.<\/p>\n<p><iframe loading=\"lazy\" id=\"ohm153129\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=153129-153130-153131&theme=oea&iframe_resize_id=ohm153129&sameseed=1&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox learning-objectives\">\n<h3>Glossary<\/h3>\n<div class=\"titlepage\">\n<dl>\n<dt>autonomous consumption: <\/dt>\n<dd>The amount consumers spend if their income was zero; i.e. consumer spending which is caused by something other than income, for example, borrowing<\/dd>\n<dt>consumption function: <\/dt>\n<dd>graphical relationship between national income and consumption expenditure; algebraically: C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income<\/dd>\n<dt>marginal propensity to consume: <\/dt>\n<dd>fraction of any change in income which is spent; algebraically MPC =\u00a0<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>C\/<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>Y<\/dd>\n<dt>marginal propensity to save: <\/dt>\n<dd>fraction of any change in income which is saved; algebraically MPS =\u00a0<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>S\/<strong class=\"None headword\" lang=\"mul\">\u0394<\/strong>Y<\/dd>\n<\/dl>\n<\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-7639\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Modification, adaptation, and original content. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>The Expenditure-Output Model. <strong>Authored by<\/strong>: OpenStax College. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/cnx.org\/contents\/vEmOH-_p@4.29:2cZ9K6tp@3\/The-Expenditure-Output-Model\">https:\/\/cnx.org\/contents\/vEmOH-_p@4.29:2cZ9K6tp@3\/The-Expenditure-Output-Model<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/contents\/bc498e1f-efe9-43a0-8dea-d3569ad09a82@4.4<\/li><li>Consumption Function. <strong>Provided by<\/strong>: lostmy1. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=G5XQB7vZqvA\">https:\/\/www.youtube.com\/watch?v=G5XQB7vZqvA<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Consumption Function. <strong>Authored by<\/strong>: Collin Weigel. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?time_continue=4&#038;v=_iuj76W76Ts\">https:\/\/www.youtube.com\/watch?time_continue=4&#038;v=_iuj76W76Ts<\/a>. <strong>License<\/strong>: <em>Other<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":29,"menu_order":4,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"The Expenditure-Output 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