People expend most of their income on commodities. Some spend their income completely and some others spend a part and keep the rest for saving. How much the community as an entire spends and saves? It is about the relationship among income and consumption.
The word ‘consumption function’ describes the relationship among income and consumption. A function is the link among two or more variables. The proportion of income spent on real consumption at various levels of income is termed as propensity to consume.
Figure: Consumption function
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