The relationship between the consumption expenditure

and the income is known as consumption function.

C = F (Y)

When we write consumption function in terms of an algebraic expression, we write, C =\overline{C} +bY Where, C = Consumption expenditure,

\overline{C} = Autonomous consumption i.e. consumption at zero level of income,

b = Marginal Propensity to Consume, Y = Income

Let us understand consumption function with the help of an imaginary schedule and diagram:

production of goods and services, leading to increase in induced investment and hence. National Income. On the other hand, savings are considered as leakages from the circular flow of income by reducing consumption demand and hence production,- investment and National Income also fall.

The point B in the diagram represents the break-even point where the consumption expenditure equals to the income.