According to Keyne’s Psychological Law of Consumption, Consumption is a function of income. In his words; “Human is disposal by nature, as income increases, consumption expenditure also increases but increase in consumption is smaller than the increase in income”. Mathematically C= f(y) ; i.e. C = a + b(y), Where a = Autonomous Consumption, b = MPC and Y = Income
In
Keynesian
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
macroeconomics
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
, the Fundamental Psychological Law underlying the
consumption function
In economics, the consumption function describes a relationship between consumption and disposable income. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a ...
states that
marginal propensity to consume
In economics, the marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and t ...
(MPC) and
marginal propensity to save
The marginal propensity to save (MPS) is the fraction of an increase in income that is not spent and instead used for saving. It is the slope of the line plotting saving against income. For example, if a household earns one extra dollar, and the ...
(MPS) are greater than zero(0) but less than one(1)
MPC+MPS = 1
e.g. Whenever national income rises by $1 part of this will be consumed and part of this will be saved
References
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{{macroeconomics-stub
Keynesian economics