Keynes Psychological law of Consumption

Introduction:

This theory is propounded by J .M Keynes. It explains the relationship between change in income and corresponding change in consumption and saving. According to this theory, when the income increases consumption also increases less than increase in income because few part of the income is spent on saving.

Assumption:

1. Psychological and Institutional factors like taste and preference, fashion, price level, population, etc. are constant.

2. There is existence of normal condition which means no war, conflict and hyperinflation.

3. There must be no government intervention.

Income in million	Consumption in million	Saving in million
0	40	-40
200	200	0
300	280	20
400	360	40
500	444	60