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Keynes' psychological Law of consumption - Class 12, Mcro Economics Video Lecture

FAQs on Keynes' psychological Law of consumption - Class 12, Mcro Economics Video Lecture

1. What is Keynes' psychological Law of consumption?

Ans. Keynes' psychological Law of consumption states that as income increases, the proportion of income spent on consumption decreases, but the absolute amount of consumption expenditure increases.

2. How does Keynes' psychological Law of consumption affect the economy?

Ans. Keynes' psychological Law of consumption suggests that as income rises, people tend to save a larger portion of their income rather than spend it all. This behavior can lead to a decrease in aggregate demand, which can have a negative impact on the overall economy.

3. What factors influence the application of Keynes' psychological Law of consumption?

Ans. The application of Keynes' psychological Law of consumption is influenced by several factors, including income levels, consumer confidence, interest rates, wealth distribution, and government policies. These factors can affect the propensity to consume and save, thus shaping the consumption patterns in an economy.

4. How does Keynes' psychological Law of consumption explain the concept of marginal propensity to consume (MPC)?

Ans. Keynes' psychological Law of consumption is closely related to the concept of marginal propensity to consume (MPC). MPC refers to the proportion of an additional unit of income that is spent on consumption. As income increases, the MPC decreases, reflecting the tendency of individuals to save a higher proportion of their income rather than spend it.

5. What are the implications of Keynes' psychological Law of consumption for government policies?

Ans. Keynes' psychological Law of consumption suggests that during periods of economic downturn, when consumer spending is low, government policies can be implemented to stimulate consumption and boost aggregate demand. This can be done through measures such as tax cuts, increased government spending, or providing incentives for consumer spending. By understanding the behavioral patterns of consumption, policymakers can formulate effective strategies to influence economic growth and stability.

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