Consumption function in detail, different theories of consumption function

I want to read whole consumption function theories like relative income hypothesis, Permanent income and life cycle hypothesis etc

Dear student,

(1) Relative income hypothesis, consumption of an individual is not the function of his absolute income, but of his relative position in the income distribution in a society, that is, his consumption depends on his income relative to the incomes of other individuals in the society. For example, if the incomes of all individuals in a society increase by the same percent­age, then his relative income would remain the same, though his absolute income would have in­creased.

(2) An important post-Keynesian theory of consumption has been put forward by Modigliani and Ando which is known as a life cycle theory. According to a life cycle theory, the consumption in any period is not the function of current income of that period but of the whole lifetime expected income.

(3) Permanent income theory of consumers’ behaviour has been put forward by a well-known American economist, Milton Friedman. Though Friedman’s permanent income hypothesis differs from life cycle consumption theory in details, it has important common features with the latter. Like the life cycle approach, according to Friedman, consumption is determined by long-term expected income rather than current level of income.

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