The Consumption Function

Abstract

The study of the aggregate consumption function is one of the most important areas of macroeconomics, probably because of the interest given to it by the emphasis on the marginal propensity to consume in the multiplier and business cycle models of Keynes and the Keynesians and in the early growth models developed in the Keynesian tradition. This long tradition has produced a good deal of shifting about, as both technique and analysis have firmed up over the years, but it is interesting, nonetheless, that the classic studies (e.g., Keynes’s “General Theory”) contain many of the elements of our recent theory, without many of the recent econometric refinements, to be sure. Thus there is a useful continuity to the consumption literature; on the other hand there are also a considerable number of provisional results, especially in the empirical area, and much has been made provisional in recent years on account of the “rational expectations” approach to the traditional problems.