Keynes Psychological Law of Consumption

Throughout the history of economics, there have been numerous economists that introduced new theories and laws. While some of them were accepted and contributed to the modern economic system, others simply perished with time. Keyne’s psychological law of consumption is one that is still being used today.

What is Keynes’s Psychological Law of Consumption?

This law is known by two other names, Consumption Function and Fundamental Psychological Law. This is more or less an economic formula that portrays the association between income and consumption formulated by a British economist, John Maynard Keynes, in 1936. Although this law has the word ‘psychological’ in its name, the psychological aspect is the general observation of consumer behavior. According to this law, a portion of the raised income that is spent on consumption known as the marginal propensity to consume (MPC), and marginal propensity to save (MPS), which is how savings are influenced by increased income, are greater than zero but less than one.