Understanding the Consumption Function

Shall we start? Yes, very very very very very very very very very good afternoon everyone Let's start Today's lecture is going to be fun I don't know about you, but I am sure you will enjoy it Keep your mind open Or Think and understand a little bit What do you say? Increase your understanding a little bit He has stopped it It's getting hot and he is going to stop it Oh brother Yes? Yes Come on Quickly quickly quickly open your brain Let's start. Sir, we are discussing consumption function. What are we discussing sir? Consumption function. First of all, we said that our consumption function is Basically, we have two things. First of all, let me remind you that we are studying consumption function. Which means, this consumption function is a part of aggregate demand. Under aggregate demand, we have this concept. consumption function. In which we said that aggregate demand is equal to your consumption expenditure and investment expenditure. In which we have considered investment expenditure as constant in short term. We have considered it as constant and now we are talking about consumption expenditure. To understand consumption expenditure, we have come to consumption function. Is it clear? Yes sir. Now understand the matter carefully. Whenever we talk about consumption function, first of all we have to say that consumption function is a function which is dependent upon income. Consumption is dependent upon income. This is definitely clear. Now when we are talking about consumption function, What did we say in consumption function? We said that aggregate consumption expenditure is a function of disposable income. The relationship between. Here we are basically talking about. Now I will not repeat the word consumption expenditure again and again I will say consumption Do you understand the meaning of consumption? Yes? Okay sir We are talking about the relationship between consumption and disposable income Step by step concept wise we will build the concept. We are starting from the base. We started with aggregate demand. Aggregate demand and aggregate supply concept we are going to study. We are studying aggregate demand and in aggregate demand we are studying consumption function. Here in consumption function we have two things. One is we have consumption expenditure and second is investment expenditure. We have done investment expenditure and we are talking about consumption expenditure constantly. Consumption expenditure relation. We are going to decide or discuss with the income. Which income? Disposable income. Is that clear? Yes, sir. So, consumption expenditure denoted by C. Disposable income denoted by YD. Disposable income, right? That's why I called it YD. Consumption expenditure is C. Okay, sir. Here, they say, the relationship between consumption and disposable income is... is... Disproportional relation Let me explain this in detail Relationship between consumption and disposal is First of all I said Positive Meaning sir, meaning sir, meaning sir I will explain the meaning We considered this as C and this as YD Positive means If disposable income increase, consumption will increase. Direct relation. Declaration? Yes, yes. Sir, it is positive but it is disproportionate. Increase in disposable income will be always more than increase in consumption. Income will increase, consumption will decrease. Because of this, they have given us an equation. C is equal to A plus B Y. A plus B. C. Consumption expenditure. A. Auto. Autonomous consumption. B. Why? Disposable income. Disposable income. One at a time. One at a time. First of all, we know about the consumption expenditure and disposable income. What is this autonomous consumption? Autonomous consumption means that this is expense even at nil income. Haha, what a joke sir, this is not true. We will spend our income. How will we spend without income sir? You will have to spend without income. Basic necessities, bread, clothes, house. Sir, we will roam naked. You can roam, no need of clothes. There is no house, I will sleep on the footpath. Bread. We need it. We can't live without it. Simple, right? But as I have already told you, we are talking about economics. Rational consumers who want to roam around in society wearing clothes under the roof, with their stomachs full. You understand, right? So the one you are talking about, the one whose imagination is in your mind, without clothes, without a roof, According to which people are living on the road, if you see, those people are not considered as rational consumers. Say, yes, right? So here the work CID brain is not working. You are not reading this law. This is not the law. Sir, if this happens, then don't use that brain. Okay? So brother, the law that is being stated, according to rational consumer, We are reading this law as per the rational and normal person. Okay sir. If we talk about it, it is a simple thing to understand. As I told you, it is May 2022. May 2022, what is going on now? It is going on 24th, almost. I am talking about May 2022. XYZ whatever was the reason, whatever was the situation. At that time, May 2022, the situation was such that I was with a nil income. I had no income. I was on zero income at that time. The situation was bad. But as soon as the situation was bad, I knew that my income was zero at that time. But I immediately started getting tensed. I was like, what? Next month, from where will I pay rent? Next month, from where will I buy ration? Clothes are fine, we will wear old clothes and roam around, there is no problem in that. Roti and clothes are going on after the house. What will I have to do about the house, sir? The rent that is in the house, I will have to leave that. And I will have to go and live in my original house where we were living before. This was the situation, sir. Number one. So, okay, that Masanga... We will manage it. It is okay. We will not stay in a rented house. We will stay in our old house, which is a small house. We will stay in a hut. No problem. We will manage it. What will we do with the grains? What will we do with the ration? Where will we get the ration from? So where will we have to get it from? What is the option here? What is the option? Tell me the option. I don't have income. Tell me what the option is. Before going on loan, there will be another option, right? No, we will go directly on loan. There is a loan option, apart from that. You will utilize the savings that are there in your boat, right? What did people do in COVID? The savings that they had, they started using that, right? I am talking about that. So, even if you don't have income, there is some proportion of expenditure that you will have to incur. we have to do basic expenses we were living in covid, we didn't have job, we didn't have income, so we were not eating grains we were not eating dal, rice, roti, sabzi we were living in a house, if there was a house we were paying rent for it say yes or no maybe you didn't pay for 1 month or 2 months, but you will have to pay for 3rd or 4th month of the first 2 months Maybe the person in front of you who was considerable, that person has reduced the rent for you. You have 25,000 rent, there is no tension, there is a situation of covid, the situation is bad, you give only 15,000. But if you give 15,000, then it will be there, right? That is autonomous consumption. That is what? Autonomous consumption. It means, even if you don't have income, you have to spend. That is autonomous consumption. Even if you don't have income, then how is it possible? How is it possible? From your savings. You will use savings, right? Sir, if you say that we will not use savings, we will borrow. Son, understand the matter. If you are borrowing on today's date, then in the future you will have to repay it, right? So, what will you do in short? When you will have income in the future, instead of saving, you will repay the loan. Did not understand. So, in short, you are using your savings. If you don't have savings now, then you borrowed it. So you will put savings of future there. It's simple. In short, autonomous consumption means that expenditure which has to be incurred, compulsory expenditure. even at zero level of income if there is an autonomous expenditure then that expenditure will definitely happen so in consumption expenditure when I talk about consumption expenditure then in consumption autonomous expenditure will come yes sir additional expenditure you are going to do because of increase in income if income increases then you will increase expenditure now listen carefully you have so much income that you are getting two hot rotis with biryani Your basic necessities are getting fulfilled and your income is increasing. So what will you do? Suppose my salary is 50,000 and my household expenses are 40,000. My income has increased from 50,000 to 70,000. What will you do? Will you increase your expenses? Will your expenses increase? 50,000 means what I said 50,000 salary is 75,000 means my income increased from 25,000 Yes, if my income is 50 to 75 means my income increased from 50 to 25,000 Will my expenses increase from 25,000? How much will it increase? It will increase a little less, right? Means sir, if your income increased from 25,000, then your expenses will increase from 10,000, 15,000, 20,000 You will not spend the whole 25,000 Why not? Because you will not spend the whole 25,000 Sir, we will save some money, where will we spend all this money? Will we waste it? Money, Masanga, this money. Is it correct? Where will we spend it? Where will you waste it? We will spend maximum amount of money. Earlier you used to go once a month to eat food in hotel. Now you will go four times a month. Right? We will not go more than that. It is simple. So, somewhere or the other, the thing is that where your income increases, your consumption also increases. Where your income increases, your consumption also increases. But proportion of change in income is more than the proportion of change in consumption. Means increase in consumption is less than the increase in income. Or we can say increase in income is more than the increase in consumption. So here I change the name of increase by saying change. Change in demand, change in supply, change in price. So change in income is more than the change in consumption. Did you understand what I said? I said change in consumption, change in income is more than the change in consumption. So basically I want to tell you that change in consumption upon change in income, change in consumption upon change in income, I will tell you now, always, Income will be more and consumption will be less. Say, Hayana! Always, income will be more and consumption will be less. Increase in income will be more than the increase in consumption. Suppose, if your income has increased this much, then your consumption will increase by this much. Understood? If this income increases, then consumption will increase more. But it will be less than income. Understood what I am saying? Are you sure? So this is, change in consumption upon change in income also called as marginal propensity to consume MPC Additional Consumption will always be less than the additional income. We are talking about additional income. So, what does additional income mean? Marginal. So, this marginal propensity to consume. Means, your desire to consume. The higher the income, does your desire to consume increase? No, sir. If our income increases by lakhs, then our expenses will increase by 70,000. And as the income increases, will it increase by another lakh? It will increase by 7000. Will it increase by another lakh? It will increase by 50,000. Will it increase by another lakh? It will increase by 40000. You don't understand. You don't understand. So marginal propensity to consume is between 0 to 1. Between 0 to 1. not equal to zero not equal to one not equal to zero not equal to one oh what did you say sir if my income increases from one if it increases from one then what will be my income in consumption and in savings then my expenses will increase from 0.7 suppose I convert it to decimal if my income increases from 100% then my expenses will increase from 70% Hi Ana, Hi Ana, 100% income, simple I said this much only, what did I say? Do you understand this? If income will increase by 100%, then expenses will increase by 70%. Do you understand this? If income will increase by 100%, then expenses will increase by 70%. So I did nothing, I converted it to normal numbers. So if we divide 100 by 100, we get 1. If we divide 70 by 100, we get 0.7. Yes, right? If I say that MPC is equal to 0, You are saying that income is increasing but expenses are not increasing. This will not happen, sir. Even if it is a little, expenses will increase. Even if it is a little, expenses will increase. Oh man! It's a simple matter sir, earlier I used to wear a t-shirt worth 200 rupees, today I don't wear a t-shirt below 1000 rupees. Simple right? Yes sir. Earlier I used to wear shirts worth 400-450 rupees, now I wear shirts worth 1800-1900 rupees. The cost will increase sir. If the income increases, then it's fine, I will wear more expensive shirts. Earlier I used to repeat clothes, now I will not repeat, I will wear clothes everyday. I will not let the clothes repeat once in a month. Sir, the income increased. I will not let the clothes repeat once in a quarter. Sir, the income increased. I will not let the clothes repeat once in six months. I will keep 180 pairs of clothes. One cloth for every day. The income increased. 365 pairs. I will wear 365 pairs of clothes for 365 days. Okay. Sir, my income has increased. I will buy a new watch. I will not repeat the watch in a week. My income has increased. I will not repeat the watch in 15 days. I will not repeat the watch in a month. Now understand, expenses will increase. Expenses will increase. It is simple. So what you do is, you will increase quantity and quality. You will increase quantity and quality. There is something or the other but expenses will increase. So MPC cannot be equal to zero. Straight forward? Yes. MPC cannot be equal to 1. Why sir? The amount earned is the expense. Earned 1 lakh, you spent 1 lakh more. What did you do? You set fire. There was Holi burning, you put money in Holi. What a joke. Is this going to happen? This will not happen. So MPC will be between 0 and 1. It won't be negative. It won't be 0. It won't be 1. it will be 0.1, 0.2, 0.3, 0.5, 0.7, 0.10 you understand what I am saying you understand what I am saying, 100% now read when income is low consumption expenditure of household will exceed their disposable income when income is low your income is very low you are very poor you are like pure poor Tejasar so consumption expenditure of household will exceed the disposable income and household dis save This save means you will use old savings because money is getting less to spend. They either borrow money or draw from their past savings. They either borrow or draw from past savings to purchase consumption goods. If the disposable income increases, consumers will increase their planned expenditure and current consumption expenditure rise. But only by less than increasing. If your income increases by 1 lakh, then you will not spend 1 lakh 50 thousand. Your earlier expense was 50 thousand, income was 50 thousand. Okay. But if you understand that even there, if you earn Rs. 50,000, you will not spend Rs. 50,000. You will spend only Rs. 40,000 by taking out Rs. 10,000 from the side. Simple? Simple? Yes. So when my expense was Rs. 40,000, my income was Rs. 50,000. Now my income has increased from Rs. 50,000 to Rs. 1 lakh. So I will not spend Rs. 40,000 to Rs. 80,000. You understand? If you have 1 lakh of 50 thousand, it means 100% increase. Yes or no? But your expense will not be 40 thousand to 80 thousand. It will be 40 thousand to 70 thousand. You understand what I am saying? 100% If your income is increasing from 50% to 100%, then your expense will increase by 70%, 80%, 90%. Not 100%. The specific form of consumption income relationship termed the consumption function proposed by Keynes is as follows. C is equal to A plus B Y. C is consumption. A is C is total consumption. A is autonomous consumption plus B. B is MPC marginal propensity to consume. See aggregate consumption why total disposable income constant term which denotes positive value of consumption at zero level of disposable income yeah, but oh yeah, yeah a Is a constant term which denotes the positive value of consumption at zero level of income? What up zero level can come per bit map her chat her naval a Hey add the parameter B the slope function what name did you give slope function also called as change in consumption upon change in income that is marginal propensity to consume right right come here i will write here again now we have named it sir we have named it sir slope function or change in consumption upon changing income or MPC MPC marginal propensity to consume is it clear to everyone? is it clear? Thank I will write it nicely we know what is marginal here we are going to see additional income and additional consumption So it is additional and that is why it is marginal. Is it clear? So it is additional and that is why we called it change in income and change in consumption. Is it clear? Sir, what is the meaning of propensity? I am telling you the normal English meaning. Natural tendency to behave in a particular manner. Natural tendency means generally everyone behaves in this way. This general behavior is called propensity. It is a technical word. Did you understand my point? So marginal propensity to consume. Did you understand why marginal word is being used? Because we are going to discuss change in income and change in consumption. So here what we said? Always. What is the propensity? What is propensity? What will be the behavior? The behavior will be change in income will always be change in consumption change in income will always be more than the change in consumption forever therefore this couple change in why both a greater than change in C bowling it therefore change in C upon change in why Bigger than zero, smaller than one Big things happen in small things, Chinnurita because of the heat, it happens you can see the heat from which I am sweating Rs. 2500 a month this is it because here why MPSC is not equal to zero? why MPSC is not equal to zero? MPSC is zero, why won't it happen? Yes, so it means I will give you the meaning in Hindi Income will increase Consumption will increase a little What a man MPC will not be equal to 1 because the higher the income, the more they will not spend it. It is a puzzle. Each and every point. Are you able to understand MPC? I understood A. I had to understand this. Huh! Huh! Spit it out. Hey, what do you want? What do you want, Cyrus? What? What? So what is he saying on the board? What is he saying? Last time he... I am not satisfied with the rough book and fair book today. Already I have less time to do the work that I have in my life. On top of that, there were amazing kids in school. We first write in rough and then go to the garg and do fair. Hey, you fool! You don't have time to do that. You are playing rough and fair, rough and fair. Such people don't live their life. Seriously, you write the same thing in a rough book and go home and write the same thing again? Amazing man! I have never made a book in English, Hindi or Marathi in school. I mean I have made it. I mean there were one or two notebooks, sometimes it was in English, sometimes in Hindi. Whatever I felt like writing, I wrote it and finished it. I never made a book on History and Geography My book was only on Science and Maths I used to work in the same notebook I used to show the class notebook to the teacher What will be the result? I didn't even study and the teacher solved it for me It's... Today Ria has come, with Chawan and Neel. Has Sushil's exam finished or not? He will drop and come from the back. Is there anyone else in the boys? Only Sushi? And? Nikhil is the only one. Show me his face Show me Nikhil's face on Whatsapp He is not even on Instagram Who is Nikhil? Now a new singer from Karnataka has come Yes, there is a new singer from Karnataka There is one more singer He is Patil What is his name? Karan He is also a singer And who are you guys talking about? Which Nikhil are you talking about? Is he white? The one who wears glasses? He has back pain issue? He is also missing. What is his name? Harsh? Karan? Karan? Karan? Yes, Karan. Did he go to Mumbai? Oh, yes, it was in December. Oh, I don't remember Nikhil. He messaged me. Why? Did he come for a picnic? Yes, he did. He is in cricket. He is a CA. He sent me a photo of Sushil. Yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes Ok, is this done? Then tell me From tomorrow start lecture at 1pm Finish your food before 1 o'clock. If you feel that you are running out of time, then call Sir Ganshar. done

Yes Come on Quickly quickly quickly open your brain Let's start. Sir, we are discussing consumption function. What are we discussing sir?

Consumption function. First of all, we said that our consumption function is Basically, we have two things. First of all, let me remind you that we are studying consumption function. Which means, this consumption function is a part of aggregate demand. Under aggregate demand, we have this concept.

consumption function. In which we said that aggregate demand is equal to your consumption expenditure and investment expenditure. In which we have considered investment expenditure as constant in short term. We have considered it as constant and now we are talking about consumption expenditure.

To understand consumption expenditure, we have come to consumption function. Is it clear? Yes sir. Now understand the matter carefully.

Whenever we talk about consumption function, first of all we have to say that consumption function is a function which is dependent upon income. Consumption is dependent upon income. This is definitely clear. Now when we are talking about consumption function, What did we say in consumption function? We said that aggregate consumption expenditure is a function of disposable income.

The relationship between. Here we are basically talking about. Now I will not repeat the word consumption expenditure again and again I will say consumption Do you understand the meaning of consumption? Yes?

Okay sir We are talking about the relationship between consumption and disposable income Step by step concept wise we will build the concept. We are starting from the base. We started with aggregate demand. Aggregate demand and aggregate supply concept we are going to study. We are studying aggregate demand and in aggregate demand we are studying consumption function.

Here in consumption function we have two things. One is we have consumption expenditure and second is investment expenditure. We have done investment expenditure and we are talking about consumption expenditure constantly. Consumption expenditure relation.

We are going to decide or discuss with the income. Which income? Disposable income. Is that clear? Yes, sir.

So, consumption expenditure denoted by C. Disposable income denoted by YD. Disposable income, right?

That's why I called it YD. Consumption expenditure is C. Okay, sir. Here, they say, the relationship between consumption and disposable income is...

is... Disproportional relation Let me explain this in detail Relationship between consumption and disposal is First of all I said Positive Meaning sir, meaning sir, meaning sir I will explain the meaning We considered this as C and this as YD Positive means If disposable income increase, consumption will increase. Direct relation. Declaration?

Yes, yes. Sir, it is positive but it is disproportionate. Increase in disposable income will be always more than increase in consumption.

Income will increase, consumption will decrease. Because of this, they have given us an equation. C is equal to A plus B Y. A plus B.

C. Consumption expenditure. A. Auto.

Autonomous consumption. B. Why? Disposable income.

Disposable income. One at a time. One at a time. First of all, we know about the consumption expenditure and disposable income. What is this autonomous consumption?

Autonomous consumption means that this is expense even at nil income. Haha, what a joke sir, this is not true. We will spend our income. How will we spend without income sir?

You will have to spend without income. Basic necessities, bread, clothes, house. Sir, we will roam naked. You can roam, no need of clothes. There is no house, I will sleep on the footpath.

Bread. We need it. We can't live without it.

Simple, right? But as I have already told you, we are talking about economics. Rational consumers who want to roam around in society wearing clothes under the roof, with their stomachs full. You understand, right?

So the one you are talking about, the one whose imagination is in your mind, without clothes, without a roof, According to which people are living on the road, if you see, those people are not considered as rational consumers. Say, yes, right? So here the work CID brain is not working. You are not reading this law.

This is not the law. Sir, if this happens, then don't use that brain. Okay?

So brother, the law that is being stated, according to rational consumer, We are reading this law as per the rational and normal person. Okay sir. If we talk about it, it is a simple thing to understand.

As I told you, it is May 2022. May 2022, what is going on now? It is going on 24th, almost. I am talking about May 2022. XYZ whatever was the reason, whatever was the situation. At that time, May 2022, the situation was such that I was with a nil income. I had no income.

I was on zero income at that time. The situation was bad. But as soon as the situation was bad, I knew that my income was zero at that time. But I immediately started getting tensed.

I was like, what? Next month, from where will I pay rent? Next month, from where will I buy ration? Clothes are fine, we will wear old clothes and roam around, there is no problem in that. Roti and clothes are going on after the house.

What will I have to do about the house, sir? The rent that is in the house, I will have to leave that. And I will have to go and live in my original house where we were living before.

This was the situation, sir. Number one. So, okay, that Masanga... We will manage it.

It is okay. We will not stay in a rented house. We will stay in our old house, which is a small house. We will stay in a hut.

No problem. We will manage it. What will we do with the grains? What will we do with the ration? Where will we get the ration from?

So where will we have to get it from? What is the option here? What is the option? Tell me the option. I don't have income.

Tell me what the option is. Before going on loan, there will be another option, right? No, we will go directly on loan.

There is a loan option, apart from that. You will utilize the savings that are there in your boat, right? What did people do in COVID? The savings that they had, they started using that, right?

I am talking about that. So, even if you don't have income, there is some proportion of expenditure that you will have to incur. we have to do basic expenses we were living in covid, we didn't have job, we didn't have income, so we were not eating grains we were not eating dal, rice, roti, sabzi we were living in a house, if there was a house we were paying rent for it say yes or no maybe you didn't pay for 1 month or 2 months, but you will have to pay for 3rd or 4th month of the first 2 months Maybe the person in front of you who was considerable, that person has reduced the rent for you.

You have 25,000 rent, there is no tension, there is a situation of covid, the situation is bad, you give only 15,000. But if you give 15,000, then it will be there, right? That is autonomous consumption. That is what? Autonomous consumption.

It means, even if you don't have income, you have to spend. That is autonomous consumption. Even if you don't have income, then how is it possible? How is it possible?

From your savings. You will use savings, right? Sir, if you say that we will not use savings, we will borrow.

Son, understand the matter. If you are borrowing on today's date, then in the future you will have to repay it, right? So, what will you do in short? When you will have income in the future, instead of saving, you will repay the loan. Did not understand.

So, in short, you are using your savings. If you don't have savings now, then you borrowed it. So you will put savings of future there.

It's simple. In short, autonomous consumption means that expenditure which has to be incurred, compulsory expenditure. even at zero level of income if there is an autonomous expenditure then that expenditure will definitely happen so in consumption expenditure when I talk about consumption expenditure then in consumption autonomous expenditure will come yes sir additional expenditure you are going to do because of increase in income if income increases then you will increase expenditure now listen carefully you have so much income that you are getting two hot rotis with biryani Your basic necessities are getting fulfilled and your income is increasing.

So what will you do? Suppose my salary is 50,000 and my household expenses are 40,000. My income has increased from 50,000 to 70,000. What will you do?

Will you increase your expenses? Will your expenses increase? 50,000 means what I said 50,000 salary is 75,000 means my income increased from 25,000 Yes, if my income is 50 to 75 means my income increased from 50 to 25,000 Will my expenses increase from 25,000?

How much will it increase? It will increase a little less, right? Means sir, if your income increased from 25,000, then your expenses will increase from 10,000, 15,000, 20,000 You will not spend the whole 25,000 Why not?

Because you will not spend the whole 25,000 Sir, we will save some money, where will we spend all this money? Will we waste it? Money, Masanga, this money. Is it correct?

Where will we spend it? Where will you waste it? We will spend maximum amount of money. Earlier you used to go once a month to eat food in hotel. Now you will go four times a month.

Right? We will not go more than that. It is simple. So, somewhere or the other, the thing is that where your income increases, your consumption also increases.

Where your income increases, your consumption also increases. But proportion of change in income is more than the proportion of change in consumption. Means increase in consumption is less than the increase in income. Or we can say increase in income is more than the increase in consumption.

So here I change the name of increase by saying change. Change in demand, change in supply, change in price. So change in income is more than the change in consumption. Did you understand what I said? I said change in consumption, change in income is more than the change in consumption.

So basically I want to tell you that change in consumption upon change in income, change in consumption upon change in income, I will tell you now, always, Income will be more and consumption will be less. Say, Hayana! Always, income will be more and consumption will be less. Increase in income will be more than the increase in consumption. Suppose, if your income has increased this much, then your consumption will increase by this much.

Understood? If this income increases, then consumption will increase more. But it will be less than income.

Understood what I am saying? Are you sure? So this is, change in consumption upon change in income also called as marginal propensity to consume MPC Additional Consumption will always be less than the additional income. We are talking about additional income. So, what does additional income mean?

Marginal. So, this marginal propensity to consume. Means, your desire to consume.

The higher the income, does your desire to consume increase? No, sir. If our income increases by lakhs, then our expenses will increase by 70,000. And as the income increases, will it increase by another lakh? It will increase by 7000. Will it increase by another lakh?

It will increase by 50,000. Will it increase by another lakh? It will increase by 40000. You don't understand. You don't understand. So marginal propensity to consume is between 0 to 1. Between 0 to 1. not equal to zero not equal to one not equal to zero not equal to one oh what did you say sir if my income increases from one if it increases from one then what will be my income in consumption and in savings then my expenses will increase from 0.7 suppose I convert it to decimal if my income increases from 100% then my expenses will increase from 70% Hi Ana, Hi Ana, 100% income, simple I said this much only, what did I say?

Do you understand this? If income will increase by 100%, then expenses will increase by 70%. Do you understand this? If income will increase by 100%, then expenses will increase by 70%.

So I did nothing, I converted it to normal numbers. So if we divide 100 by 100, we get 1. If we divide 70 by 100, we get 0.7. Yes, right? If I say that MPC is equal to 0, You are saying that income is increasing but expenses are not increasing.

This will not happen, sir. Even if it is a little, expenses will increase. Even if it is a little, expenses will increase. Oh man! It's a simple matter sir, earlier I used to wear a t-shirt worth 200 rupees, today I don't wear a t-shirt below 1000 rupees.

Simple right? Yes sir. Earlier I used to wear shirts worth 400-450 rupees, now I wear shirts worth 1800-1900 rupees. The cost will increase sir.

If the income increases, then it's fine, I will wear more expensive shirts. Earlier I used to repeat clothes, now I will not repeat, I will wear clothes everyday. I will not let the clothes repeat once in a month.

Sir, the income increased. I will not let the clothes repeat once in a quarter. Sir, the income increased. I will not let the clothes repeat once in six months. I will keep 180 pairs of clothes.

One cloth for every day. The income increased. 365 pairs. I will wear 365 pairs of clothes for 365 days. Okay.

Sir, my income has increased. I will buy a new watch. I will not repeat the watch in a week. My income has increased. I will not repeat the watch in 15 days.

I will not repeat the watch in a month. Now understand, expenses will increase. Expenses will increase. It is simple.

So what you do is, you will increase quantity and quality. You will increase quantity and quality. There is something or the other but expenses will increase. So MPC cannot be equal to zero.

Straight forward? Yes. MPC cannot be equal to 1. Why sir? The amount earned is the expense.

Earned 1 lakh, you spent 1 lakh more. What did you do? You set fire.

There was Holi burning, you put money in Holi. What a joke. Is this going to happen?

This will not happen. So MPC will be between 0 and 1. It won't be negative. It won't be 0. It won't be 1. it will be 0.1, 0.2, 0.3, 0.5, 0.7, 0.10 you understand what I am saying you understand what I am saying, 100% now read when income is low consumption expenditure of household will exceed their disposable income when income is low your income is very low you are very poor you are like pure poor Tejasar so consumption expenditure of household will exceed the disposable income and household dis save This save means you will use old savings because money is getting less to spend.

They either borrow money or draw from their past savings. They either borrow or draw from past savings to purchase consumption goods. If the disposable income increases, consumers will increase their planned expenditure and current consumption expenditure rise.

But only by less than increasing. If your income increases by 1 lakh, then you will not spend 1 lakh 50 thousand. Your earlier expense was 50 thousand, income was 50 thousand.

Okay. But if you understand that even there, if you earn Rs. 50,000, you will not spend Rs. 50,000. You will spend only Rs. 40,000 by taking out Rs. 10,000 from the side.

Simple? Simple? Yes.

So when my expense was Rs. 40,000, my income was Rs. 50,000. Now my income has increased from Rs. 50,000 to Rs. 1 lakh. So I will not spend Rs. 40,000 to Rs. 80,000. You understand? If you have 1 lakh of 50 thousand, it means 100% increase.

Yes or no? But your expense will not be 40 thousand to 80 thousand. It will be 40 thousand to 70 thousand.

You understand what I am saying? 100% If your income is increasing from 50% to 100%, then your expense will increase by 70%, 80%, 90%. Not 100%.

The specific form of consumption income relationship termed the consumption function proposed by Keynes is as follows. C is equal to A plus B Y. C is consumption. A is C is total consumption. A is autonomous consumption plus B. B is MPC marginal propensity to consume.

See aggregate consumption why total disposable income constant term which denotes positive value of consumption at zero level of disposable income yeah, but oh yeah, yeah a Is a constant term which denotes the positive value of consumption at zero level of income? What up zero level can come per bit map her chat her naval a Hey add the parameter B the slope function what name did you give slope function also called as change in consumption upon change in income that is marginal propensity to consume right right come here i will write here again now we have named it sir we have named it sir slope function or change in consumption upon changing income or MPC MPC marginal propensity to consume is it clear to everyone? is it clear? Thank I will write it nicely we know what is marginal here we are going to see additional income and additional consumption So it is additional and that is why it is marginal. Is it clear?

So it is additional and that is why we called it change in income and change in consumption. Is it clear? Sir, what is the meaning of propensity? I am telling you the normal English meaning. Natural tendency to behave in a particular manner.

Natural tendency means generally everyone behaves in this way. This general behavior is called propensity. It is a technical word.

Did you understand my point? So marginal propensity to consume. Did you understand why marginal word is being used? Because we are going to discuss change in income and change in consumption.

So here what we said? Always. What is the propensity?

What is propensity? What will be the behavior? The behavior will be change in income will always be change in consumption change in income will always be more than the change in consumption forever therefore this couple change in why both a greater than change in C bowling it therefore change in C upon change in why Bigger than zero, smaller than one Big things happen in small things, Chinnurita because of the heat, it happens you can see the heat from which I am sweating Rs. 2500 a month this is it because here why MPSC is not equal to zero?

why MPSC is not equal to zero? MPSC is zero, why won't it happen? Yes, so it means I will give you the meaning in Hindi Income will increase Consumption will increase a little What a man MPC will not be equal to 1 because the higher the income, the more they will not spend it.

It is a puzzle. Each and every point. Are you able to understand MPC? I understood A.

I had to understand this. Huh! Huh! Spit it out.

Hey, what do you want? What do you want, Cyrus? What? What? So what is he saying on the board?

What is he saying? Last time he... I am not satisfied with the rough book and fair book today. Already I have less time to do the work that I have in my life.

On top of that, there were amazing kids in school. We first write in rough and then go to the garg and do fair. Hey, you fool!

You don't have time to do that. You are playing rough and fair, rough and fair. Such people don't live their life. Seriously, you write the same thing in a rough book and go home and write the same thing again? Amazing man!

I have never made a book in English, Hindi or Marathi in school. I mean I have made it. I mean there were one or two notebooks, sometimes it was in English, sometimes in Hindi. Whatever I felt like writing, I wrote it and finished it. I never made a book on History and Geography My book was only on Science and Maths I used to work in the same notebook I used to show the class notebook to the teacher What will be the result?

I didn't even study and the teacher solved it for me It's... Today Ria has come, with Chawan and Neel. Has Sushil's exam finished or not? He will drop and come from the back.

Is there anyone else in the boys? Only Sushi? And? Nikhil is the only one. Show me his face Show me Nikhil's face on Whatsapp He is not even on Instagram Who is Nikhil?

Now a new singer from Karnataka has come Yes, there is a new singer from Karnataka There is one more singer He is Patil What is his name? Karan He is also a singer And who are you guys talking about? Which Nikhil are you talking about? Is he white? The one who wears glasses?

He has back pain issue? He is also missing. What is his name? Harsh? Karan?

Karan? Karan? Yes, Karan.

Did he go to Mumbai? Oh, yes, it was in December. Oh, I don't remember Nikhil.

He messaged me. Why? Did he come for a picnic? Yes, he did. He is in cricket.

He is a CA. He sent me a photo of Sushil. Yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes, yes Ok, is this done?

Then tell me From tomorrow start lecture at 1pm Finish your food before 1 o'clock. If you feel that you are running out of time, then call Sir Ganshar. done

Transcript for:Understanding the Consumption Function

Transcript for:
Understanding the Consumption Function