Question

what are three conjectures of keynesian consumption function? why economists worry about consumption functions? is it autonomous or disposable income that matters for economy?

Answer 1

three conjectures of Keynesian consumption function are

1.Keynes conjectured that the marginal propensity to consume. MPC lies between 0 and 1.

the amount consumed out of an additional dollar of income is between 0 and 1.

2.Keynes conjectured that the ratio of consumption to income.it is called as the average propensity to consume.

APC falls as income rises.

3.Keynes conjectured that income is the primary determinant of consumption.

on the basis of these conjectures Keynesian consumption function can be written as

=autonomous consumption

c= MPC

Y= disposable income

the economists worry about consumption function because, for the model to be valid, consumption function and independent investment must remain constant long enough for the national income to reach equilibrium.

one potential problem is that the consumption function can not handle changes in the distribution of income and wealth.when these change, so too might autonomous consumption and the marginal propensity to consume.