ABSTRACT
IN 1929 the gross national income in the United States was $103.8 billion and consumption expenditure $78.8 billion. In the depression year 1933, when the income went down to $55.8 billion, consumption also decreased to $46.3 billion. When in 1934 the income increased to $64.9 billion, consumption increased to $51.9 billion. But note that consumption increased by only $5.6 billion between 1933 and 1934, whereas the income during the period increased by $9.1 billion. Again, when the income increased by $28.1 billion between 1946 and 1947, consumption increased by only $20.8 billion. It is easy to see why consumption and income should move in the same direction, but why did an increment of income lead to a smaller increment of consumption both during the depression year 1933–34 and during the “boom” year 1946–47? The answer lies in the nature and characteristics of the consumption function in the United States. This chapter will be devoted to the explanation of the consumption function as a determinant of national income.
