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Keynes' Psychological Law of Consumption and Marginal Propensity to Consume
1.
2. Further, Keynes put forward a psychological law of
consumption, according to which, as income increases
consumption increases but not by as much as the
increase in income.
In other words, marginal propensity to consume is less
than one.
3. The functional relationship between the consumption
and income.
C=A+BY
C = Consumer spending; A = Autonomous
consumption; B = Marginal propensity to consume;
Y = Real disposable income.
A change in autonomous consumption causes a shift to
the consumption function.
4.
5.
6. No change in psychological and institutional
complex
Normal Conditions
Based on Laissez fair
7. When the total income of a community increases, the
consumption expenditure of the community will also
increase, but less proportionately.
It follows from this that an increase in income is
always bifurcated into spending and saving.
Increased aggregate income leads to increased
aggregate consumption.
Increase income divided between consumption and
savings.
8. Repudiation of say's law
Decline in MEC
Strategic importance of investment
Over saving gap
Income Generation
Turning point of trade cycle
Unemployment equilibrium.
State innervation
General Over production
