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,
induced consumption is represented by the term, where denotes disposable income and is called the marginal propensity to consume.
