Final answer:
In the IS model, consumption primarily depends on short-run income, which includes current finances and immediate earnings. However, wealth and expected future income also significantly influence consumption behavior. Autonomous consumption is also noted in the Keynesian model as a base level of spending regardless of income.
Step-by-step explanation:
In the IS model, consumption is assumed to be dependent on short-run income. This short-run income reflects the current economic condition of households, which drives their spending and saving behavior. However, this perspective can be limiting for several reasons.
First, consumption is significantly influenced by wealth. Households with the same level of income but differing levels of accumulated wealth will exhibit different consumption patterns. Higher wealth typically leads to increased consumption as there is a greater financial buffer to support spending.
Moreover, expected future income plays a critical role. If households are optimistic about their future earnings, they are more likely to consume more presently. Conversely, expectations of an economic downturn or increased future taxes can lead to a decline in current consumption as households attempt to save more and smooth their consumption over time.
Lastly, the Keynesian model highlights that even without current income, households exhibit some level of autonomous consumption, which is not necessarily reliant on their current or future income.