Absolute income hypothesis

The video above is about absolute income hypothesis .

Notes of absolute income hypothesis

Principle of Maximum Social Advantage ||And Musgrave's views || in Hindi

This video is about principles of maximum social advantage,which is a part of public economics . In this video we first analyse public finance briefly and then we discuss the principle of maximum social advantage and then we and express Musgrave's views on maximum social advantage in Hindi . We hope that this video will be helpful for the students of economics .

Consumption Function

Introduction

The amount of money that people spend out of their disposable income on the purchase of goods and services (for the direct satisfaction of their wants) is called consumption expenditure or
consumption. Consumption expenditure depends on several factors like income, price level,demonstrationeffect, etc. However, it is disposable income of the individuals and households that
impacts the consumption the most.

Consumption Function

Study of consumption function focuses on the mutual relationship between consumption

and disposable income. The functional relationship between consumption and disposable income

can be expressed as

C=f(Y)

here, C = Consumption, Y = Disposable income income after tax); f=Functional

notation)

There are two components of personal disposable income, wiz, (b) household saving

and ( household consumption. What is not saved is what is consumed. We are to study what

determines what people desire to consumc.

In other words, in the context of consumption function, we are studying what determines the

desired level of consumption expenditure of individuals and households in the economy.

Here, we are focusing on Keynesian consumption function which is based on the assumption

that consumer is not a prudent planner, He does not plan his current expenditure on the basis of

permanent income or life-cycle income Instead he plans his current expenditure exclusively on the

basis of his current income keynesian consumption function is shown in Table I and Fig. 1.

Table 1 offers following observations, in accordance with the Keynesian concept of
psychological Law of Consumption:
(i) There is always some minimum level of consumption expenditure, even when income is
zero. The table shows, consumption expenditure is 350 even when income is zero. How do people manage it? Obviously, by way of borrowings, implying negative saving. So that when Yd= zero and C= 50, S (saving)=0-50 = -50. Geometrically, it implies a consumptionfunction starting with an intercept (= 50)
ii)C increase as Yd increases. So that C is positively related to Y Geometrically, it implies ans upward sloping C function
(iii) Increase in C is not equal to increase in Yd. Because, a part of Y is saved. Geometrically, it impliesthat the rate at which increases is less than the rate at which Y increases.

A Graphic picture

Data of table 1 offers following graphic picture of consumption function .

Here

Consumption Function
C = a+BY
C = Desired consumption
a = Minimum consumption
Or
Autonomous consumption

B = Change in C in response to a
unit change in Y

Y = Personal disposable income
S = Desired saving