Direct increases in investment spending will result in a corresponding increase in the income value of aggregated output. This is because every dollar spent on home construction can be transformed into a dollar's worth of income for construction workers, building material suppliers, electricians, and any other worker on the job site.

Because a household with no disposable income can borrow or use its savings to buy some items, autonomous consumer spending is larger than zero. The marginal propensity to consume, or MPC, is the amount of money spent by a household for every additional dollar of current disposable income.

The slope of any line is “rise over run,” with the rise representing an increase in consumer expenditure and the run being an increase in the total discretionary income for the consumption function. The MPC is the “rise” for each $1 “run” in income, hence the slope of the consumption function is MPC/1 = MPC.

The life-cycle hypothesis, an influential economic model of how consumers make spending vs saving decisions, emphasizes the impact of wealth on spending. Consumers, according to this theory, plan their spending over the course of their lives, not merely in response to their current discretionary income.

The vertical intercept A, or aggregate autonomous consumer spending, grows when aggregate wealth rises—for example, as a result of a rising stock market. As a result, the aggregate consumption function rises in the same manner that future disposable income is anticipated to rise. The interest rate, the projected future level of real GDP, and the existing level of production capacity all influence planned investment spending. The impact of the interest rate is examined first.

A higher projected future real GDP growth rate leads to greater planned investment expenditure, whereas a lower expected future real GDP growth rate leads to lower planned investment spending.

Rising inventories usually signal a positive unanticipated inventory investment as well as a weakening economy, as sales are lower than expected. As sales exceed forecasts, falling inventories usually imply negative unplanned inventory investment and a rising economy.

A leftward shift of the aggregate demand curve, which shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world, is what economists refer to when they talk about a negative demand shock to the economy as a whole.

The consumer spending changes due to an increase or a decrease in disposable income can be calculated by the MPC formula below, as it calculates the change in consumer spending divided by the change in disposable income:

• MPC = Consumer Spending/Disposable Income

• The "" symbol refers to the term delta or a change in value.

The size of the spending multiplier depends on the MPC as if the marginal inclination to consume being too high can result in a higher spending multiplier.

The spending multiplier can be calculated by using the following formula:

• Y/AAS = 1/(1-MPC)

The total change in real GDP that is caused by an autonomous change in aggregate spending can be calculated by using the following formula:

• Y = 1/(1-MPC) x AAS

The consumption function is in relation to a household’s current disposable income to its consumer’s spending.

An alternative to approaching the topic of MPC would be to consider the disposable income that is not taken into the contributing factors for calculation of savings into each round of expansion.