Question

Which of the following is a core conceptual pillar of Keynes’ fundamental psychological law of consumption regarding the relationship between income and consumption?

Q: Answer-Which of the following is a core conceptual pillar of Keynes’ fundamental psychological law of consu...

Keynes Fundamental Psychological Law of Consumption or the Absolute Income Hypothesis is based on the core observation that consumption is a positive function of income, but the growth in spending does not keep pace with the growth in earnings. This law states that when aggregate real income increases, aggregate consumption also increases, but by a smaller amount i.e. 0

A Consumption increases at a rate higher than the increase in income.

B As income increases, the Average Propensity to Consume (APC) also increases.

C Men are disposed, as a rule and on average, to increase their consumption as their income increases, but not by as much as the increase in their income.

D The Marginal Propensity to Save (MPS) is always equal to the Marginal Propensity to Consume (MPC).

E Total consumption is independent of the absolute level of current income.