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,

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

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

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