Keynes' theory of consumption holds that current real disposable income is the most important determinant of short-term consumption. Real income, income adjusted for inflation. This is a measure of the number of consumers who purchase goods and services with their income or budget. For example, with a 20% increase in monetary income the possible matches due to inflation increased by 20%. This means that the actual income or quantity of goods and services, purchasing volume is kept continuous. Disposable income (Yd) = Gross income - (Direct tax deductions + benefits) The standard Keynesian consumption function is as follows: C = a + c Yd where,C= Consumption expenditure a = autonomous consumption. At this level of consumption, this would happen even if income were zero. If an individual's income fell to zero, some of their existing spending could be met using savings. This is known as un-saving. c = marginal propensity to consume (MPC). This is the change in consumption divided by the change in income. Simply, it's the percentage of every additional pound you earn that is spent. There is a positive relationship between income and consumption, between disposable income (YD) and consumer spending (CT). Gradient of the consumption curve so that the marginal propensity to consume. As incomes increase, total consumption demand also increases. Changes in the marginal propensity to consume led to changes in the key to the consumption function. In this case, the marginal propensity to consume is decreased at each income level to reduce consumption. This can be shown below: Key Definitions of Consumption Average Propensity to Consume = Total Consumption Divided by Total Income Average Propensity to Saving = Total Savings Divided by… Half of the Paper… We have the following conditions: The Economy Starts from point U, and the government's decision, hopes to reduce the level of unemployment, because it is too high. Therefore, 5% decided to stimulate demand. Soon it will start to lead to inflation, the demand for goods and services is growing, so the increase in employment will soon be destroyed, people realize that there is no real increase in demand. It's along the Phillips curve from u to V, businesses start laying off, the unemployment rate once again returns to the W level. next in businesses and consumers are ready and inflation is expected. If the government insists on trying again, the economy will do the same thing (W to X to Y), but this time at a higher level of inflation. Any attempt to reduce inflation below the U level will simply be inflationary. The U rate is the natural rate of unemployment.