Induced consumption

Induced consumption is the portion of consumption that varies with disposable income. When a change in disposable income “induces” a change in consumption on goods and services, then that changed consumption is called “induced consumption”. In contrast, expenditures for autonomous consumption do not vary with income. For instance, expenditure on a consumable that is considered a normal good would be considered to be induced.

In the simple linear consumption function,

$C = a + b \times Y_{d}$

induced consumption is represented by the term $b \times Y_{d}$ , where $Y_{d}$ denotes disposable income and $b$ is called the marginal propensity to consume.

References

Arnold, Roger A. (2015). "The Consumption Function". Economics (12th ed.). Cengage Learning. pp. 259–60. ISBN 978-1-305-46545-9.

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