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प्रश्न
Write explanatory answer
State and explain J.M. Keynes's ‘psychological law of consumption’.
उत्तर
Keynesian psychological law of consumption explains the relationship between consumption (C) and income (Y).
According to J. M. Keynes, "as aggregate income increases, the total consumption expenditure in the economy also increases, but in a proportion less than the increase in the income."
As income increases, the individual wants are satisfied to a larger and larger extent. So, when income increases further, people do not consume the entire income. So, they save a part of it. Hence there is bound to be a gap between income and consumption.
Thus, according to Keynes, with the increase in income, both consumption and savings increases but consumption increases at a diminishing rate and savings increase at an increasing rate.
Explanation of the law :According to keynes as income increase, the individual is able to satisfy more and more wants. However, when the income is increased, the entire income is not spent on consumption instead, people save a part of it which results into a gap b/w income and consumption.
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संबंधित प्रश्न
Find equilibrium national income:
Autonomous consumption expenditure = 120
Marginal propensity to consume = 0.9
Investment expenditure = 1100
Assuming that increase in investment is Rs. 800 crore and marginal propensity to consume is 0.8, explain the working of multiplier
An economy is in equilibrium. Find 'autonomous consumption' from the following:
National income = 1000
Marginal propensity to consume = 0.8
Investment expenditure = 100
An economy is in equilibrium. Calculate the Marginal Propensity to Save from the following:
National Income = 1000
Autonomous Consumption = 100
Investment = 120
Complete the following table:
|
Consumption expenditure (Rs) |
Savings (Rs) |
Income (Rs) |
Marginal propensity to Consume |
|
100 |
50 |
150 |
|
|
175 |
75 |
……. |
…… |
|
250 |
100 |
……. |
…… |
|
325 |
125 |
……. |
…… |
Fill in the blank with appropriate alternatives given in the bracket:
The part of income not spent is________.
Answer the following question.
What is meant by autonomous consumption? Explain with the help of a diagram.
The consumption function of an economy is : C = 40 + 0.8 Y (amount in ₹ crores). Determine that level of income where the average propensity to consume will be one.
Calculate the change in final income, if Marginal Propensity to Consume (MPC) is 0.8 and change in initial investment is ₹ 1,000 crores.
Which one is correct?
Which of the following is correct?
A consumer spending on the purchase of goods regardless of the income in possession is an example of _______ consumption.
Calculate equilibrium level of income for a hypothetical economy, for which it is given that:
- Autonomous Investments = ₹ 500 crores, and
- Consumption function, C = 100 + 0.80Y
If MPC is less than one, it follows that ______
What is "MPS" or the 'marginal propensity' to save?
Identify the correct pair of from the following Columns I and II:
| Columns I | Columns II |
| 1. Total Product increases at an increasing rate and Marginal Product rises till it reaches its maximum point. | (a) Second Stage |
| 2. Total product increases at a decreasing rate and reaches maximum, and MP becomes zero. | (b) First Stage |
| 3. Total product also decreases and marginal product (MP) becomes negative. | (c) Third Stage |
| 4. Improvement in technique of production and discovery of fixed factor substitute can postpone the operation of law for some time. | (d) Fourth Stage |
The rate of increase in ______ due to a unit increment in income is called marginal propensity to consume.
The simplest consumption function assumes ______
If the value of Average Propensity to Save (APS) is 0.2 and National Income is ₹4,000 crores, then consumption will be ______
When we add up utility derived from consumption of all the units of the commodities, we get:
If the value of Average Propensity to Consume (APC) is 0.8 and National Income is ₹4,000 crores, the value of savings will be ______.
Which of the following statements is not correct?
If increase in National Income is equal to increase in consumption, identity the value of Marginal Propensity to Save:
In an economy 75 percent of the increase in income is spent on consumption. Investment increased by ₹ 1,000 crore.
Calculate the total increase in income on the basis of given information.
'Consumption function curve of an involuntary unemployed workers start from some positive level on Y-axis even at zero level of Income'. Justify the given statement.
When National Income rises from ₹ 600 Cr. to ₹ 1000 Cr., the consumption expenditure increases from ₹ 500 Cr. to ₹ 800 Cr. Calculate MPC and hence the value of Investment Multiplier.
APC can be greater than one, but MPC is always less than one. Give a reason to justify this phenomenon.
