Autonomous consumption, denoted as $c_0$ in the aggregate consumption function, represents the portion of consumption spending that is independent of current income. This term captures all influences on consumption that are not related to the current level of income. While it can be literally interpreted as the amount a person with no income would consume, it is more accurately understood as the baseline level of spending that does not fluctuate with income. The specific factors that determine the value of $c_0$ are themselves an important topic in understanding overall consumption behavior.

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The aggregate consumption function is expressed algebraically as $C = c_0 + c_1Y$. This equation breaks down total aggregate consumption ($C$) into two components: autonomous consumption ($c_0$), which is spending that does not depend on income, and induced consumption ($c_1Y$), which is the portion of spending that varies with the level of aggregate income ($Y$).

Aggregate Consumption Function Formula

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To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Macroeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Macroeconomics

The marginal propensity to consume (MPC) is the change in consumption that results from a one-unit change in disposable income. It quantifies how much of an additional unit of income is spent on consumption. In the aggregate consumption function, $C = c_0 + c_1Y_d$, the MPC is represented by the parameter $c_1$. In simplified models without government and taxes, aggregate income ($Y$) is equivalent to disposable income ($Y_d$).

Marginal Propensity to Consume (MPC)

When the aggregate consumption function is depicted on a graph with income (Y) on the horizontal axis and aggregate consumption (C) on the vertical axis, autonomous consumption ($c_0$) is represented by the vertical intercept. This is the point where the consumption line crosses the vertical axis, indicating the level of consumption spending that occurs even when income is zero.

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