The National Consumption Function

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The National Consumption Function

we may conclude that the level of disposable income is the primary determinant of the’ level of national consumption. Armed with-this result, we can plot recent annual data on consumption and disposable income in Figure 22-7. The scatter diagram shows data for the period 1970-1999. with each point representing the level of consumption and disposable income for a given year.

In addition. you might draw a line in Figure 22-7 through the scatter points and label it “Fitted consumption function.” This fitted consumption function shows how closely consumption has followed disposable income over the last quarter century. In fact. economic historians have found that a close relationship between disposable income
and consumption holds back to the nineteenth century.

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The National Consumption Function