1. Consumption Function
It expresses the relationship between total consumption expenditure and national income
C= f(Y)
Keynes uses the term propensity to consume for consumption function.
Kurihara says, “ Consumption represents the amount of consumption expenditure at a given level of income whereas the propensity to consume C/Y is a schedule of consumption expenditure at various levels of income.”

2. In words of Peterson, “ Consumption function may be defined as a schedule showing various amounts that will be spent for consumer goods and services at different levels of income.”
Dillard says, “ A schedule showing the various amounts of consumption which correspond to different levels of income is the schedule of propensity to consume.”

3. Explanation Table: Propensity to consume Income Consumption Saving 100
100
200
300
400
500 10
190
280
370
460
-10 20 30 40 Y AS
Consumption/ Saving C S C O
Income X S

4. Features of Propensity to Consume
Psychological Concept
Unequal Propensity to Consume
Income and Employment depends on propensity to consume
Consumption in short run: C=a+bY
Long run consumption function: C=bY

5. Kinds of Propensity to Consume
Average Propensity to consume (APC)
Kurihara says, “ The average propensity to consume is the ratio of consumption expenditure to any particular level of income”
APC=C/Y
Marginal Propensity to Consume (MPC)
Kurihara says, “ The marginal propensity to consume is the ratio of a change in consumption to a change in income.”
MPC= Change in C
Change in Y

6. Difference and relation between APC and MPC
APC is the ratio of total consumption to total income whereas MPC is the ratio of change in consumption to change in income
In short run, When C=a+bY, APC goes on falling but MPC remains constant with increase in income. So short run APC tends to be more than MPC.
In the long run, C=bY, Both APC and MPC tend to remain constant. And APC=MPC

7. Characteristics of MPC
It is always positive
MPC lies between 0 and 1.
MPC of the poor class is higher
MPC remains constant in the long run.
With increase in income, MPC falls in the short run.
MPC can be greater than 1 in case of abnormal situations like extreme poverty.

8. Propensity to save
It is a schedule showing relation between income and saving.
Saving is a function of Income S=f(Y)
Peterson says, “ Propensity to save may be defined as a schedule showing amounts that will be saved at different levels of income.”
Kinds of propensity to save
APS= S/Y
MPS= Change in saving/Change in Income

9. Determinant of propensity to consume
Subjective factors
Farsightedness
Enlarged income in future
Occupational motive
Miserliness
Status in society
Liquidity preference
Modernisation
Financial Prudence
Objective factors
Change in money income
Change in real income
Windfall gains & losses
Change in expectations
Fiscal policy
Wages
Change in rate of interest
Liquid Assets
Attraction of new products