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 macroeconomics, the Fundamental Psychological Law underlying the consumption function states that marginal propensity to consume (MPC) and marginal propensity to save (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
- Keynes, J. M. (1937), "The General Theory of Employment", Quarterly Journal of Economics 51: 209–223, doi:10.2307/1882087.
- Albert Hahn, L (1949). The Economics of Illusion:Critical analysis of contemporary economic theory and policy. USA: Squier Publishing company.
- Murad, Anatol. What Keynes Means. USA.
- Hirai, Toshiaki (2008). Keynes Theoretical Development- from the tract to the General theory. Milton Park, Abingdon: Routledge.
 |  |