Question

 Explain the changes in the consumption function when government sector is introduced in the National income model.

17 Jul 2025
Answer :
Word Count : 488
In the basic Keynesian model without government, the consumption function primarily depends on the level of disposable income available to households. Disposable income in this case is equivalent to national income, as there are no taxes or government interventions. Consumption is generally expressed as $C = a + bY$, where $a$ represents autonomous consumption, $b$ is the marginal propensity to consume (MPC), and $Y$ is national income. When the government sector is introduced into the national income model, the structure of the consumption function changes because household income is affected by taxes and government policies. The first _____ _________ ________ ___ _____.
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