Question

Answer in detail.
Explain Keynes psychological law of consumption.

Answer 1

According to Keynes psychological law of consumption, the amount of aggregate consumption depends up on the amount of aggregate income where the marginal propensity to consume is directly related to the level of income in the economy. According to the law, as the income increases consumption also increases but the increase in consumption is less than the increase in income because the marginal propensity to consume is always less than 1.