Law 19983 on

Classified in Economy

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psychological law of consumption

this law was propounded by jm keynes which is the basis of consumption function.According to this law people have a tendency to spend more on consumption when their income increases but not be the same extent as the increase in income,because a part of income is saved.According to keynes the fundamental psychological law upon which we have been entitled to depend with great confidence both a prior from our knowledge of human nature and from detailed facts of experience,is that men are disposed as a rule and on the averafe to increaase their consumption so as their income increses but not by as much as increase in their income.

Assumptions:

1.There is no change in the psychological and institutional factors such as price level income distribution population groth etc.

2.There should be normal situation in the economy.That is war,hyperunflation shoukd not be occured in economy.

3.The economy should be laissez faire capitalist economy and there is no government intervention.

Propositions;

1.When income increase consumptionn expenditure also increases but by a smaller amount.

2.The increase income will be divided in some proportion between consumption expenditure and saving.

3.Increase in income always leads to an increase in both consumption and saving.

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