Macroeconomics, 2nd Edition by Pearson

86

MACROECONOMICS

SUMMARY

Keynes’ fundamental psychological law of consumption states

that an increase in disposable income is accompanied by an

increase in consumption but of a smaller magnitude.

The marginal propensity to consume is the incremental con-

sumption arising from the increment to disposable income

and is less than unity.

The average propensity to consume is consumption per unit

of disposable income. The marginal propensity to consume is

less than the average propensity to consume.

The average propensity to save or the savings rate rises with

income.

The variation in consumption is significantly less than the

variation ...