What Is the Consumption Function Formula?

images by Tang Ming Tung/Moment/Getty Images

The consumption function formula is C = A + MD. Where: C is the consumer spending, A is the autonomous spending, M is the marginal propensity to consume and D is the disposable income.

The formula was created by economist John Maynard Keynes to show the relationship between consumer spending and real disposable income. The consumption function was detailed in Keynes’s book “The General Theory of Employment, Interest, and Money.” Because the formula only takes into account the current income and not the future, it is also sometimes referred to as the absolute income hypothesis. In the years following the publication of Keynes’s hypothesis, other mathematicians and economists have published their own hypotheses including the permanent income hypothesis and the life cycle hypothesis.