Final answer:
The relationship in the economy between consumption and income is called the consumption function. The consumption function represents the relationship between the level of consumer spending and the level of disposable income.
Step-by-step explanation:
The relationship in the economy between consumption and income is called the consumption function. The consumption function represents the relationship between the level of consumer spending and the level of disposable income. It shows how consumption changes as income changes.
For example, when disposable income increases, people tend to consume a smaller fraction of their income. In terms of mathematics, this is represented by the marginal propensity to consume (MPC), which is the share of additional income that a person decides to devote to consumption expenditures. The MPC plus the marginal propensity to save (MPS) always sums up to 1.
This relationship between consumption and income, as shown in the consumption function, helps us understand how changes in income affect consumer spending and saving.