Question

Give the main properties of Keynesian consumption function.

State the properties of Keynesian consumption function.

Answer 1

1. The major components of aggregate demand in the Keynesian model are consumption (C), investment (I), government expenditure (G), and net exports (X – M). Aggregate demand is the total planned spending on goods and services in an economy during a specific period.
2. Keynes emphasized consumption as the most important component. Consumption depends primarily on income, with higher income leading to higher consumption. This relationship is expressed as C = f(Y). However, consumption increases less than income, since part of income is saved. This is explained by the marginal propensity to consume (MPC), which lies between 0 and 1, i.e., 0 < c < 1.