Consumption function
In economics, the consumption function describes a relationship between consumption and disposable income. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a government spending multiplier. Details. Its simplest form is the "linear consumption function" used frequently in simple Keynesian models: where formula_2 is the autonomous consumption that is independent of disposable income; in other words, consumption when income is zero. The term formula_3 is the induced consumption that is influenced by the economy's income level formula_4. The parameter formula_5 is known  as the marginal propensity to consume, i.e. the increase in consumption due to an incremental increase in disposable income, since formula_6. Geometrically, formula_5 is the slope of the consumption function. One of the key assumptions of Keynesian economics is that this parameter is positive but smaller than one, i.e. formula_8. Keynes also took note of the tendency for the marginal propensity to consume to decrease as income increases, i.e. formula_9. If this assumption is to be used, it would result in a nonlinear consumption function with a diminishing slope. Further theories on the shape of the consumption function include James  Duesenberry's (1949) relative consumption expenditure, Franco Modigliani and Richard Brumberg's (1954) life-cycle hypothesis, and Milton Friedman's (1957) permanent income hypothesis. Some new theoretical works following Duesenberry's and based in behavioral economics suggest that a number of behavioural principles can be taken as microeconomic foundations for a behaviorally-based aggregate consumption function.