Psychological law of Keynes:
This law states that with the increase in income, consumption also increases but at a lower rate.
In simple words, with an increase in income, the proportion of income spent on consumption of various goods and services decreases and the proportion of income that goes towards saving increases.
For Example:
If a person is earning Rs. 10,000 per month and spends Rs.7,000 per month on consumption, the proportion of his income spent on consumption is 70%. Balance 30% will be his savings.
But when his income increases to Rs.1,00,000/- per month, then he will not spend 70% of income (i.e, Rs.70,000/-) on consumption. He will spend less than Rs.70,000/- on consumption. Let's say he spends say Rs.60,000 per month on consumption. Hence, the proportion of income spent on consumption now is 60%. Balance 40% of his income is savings.
This shows that with the increase in income, consumption also increases but the proportion of income spent on consumption decreases. And the proportion of income that goes towards savings increases
This law states that with the increase in income, consumption also increases but at a lower rate.
In simple words, with an increase in income, the proportion of income spent on consumption of various goods and services decreases and the proportion of income that goes towards saving increases.
For Example:
If a person is earning Rs. 10,000 per month and spends Rs.7,000 per month on consumption, the proportion of his income spent on consumption is 70%. Balance 30% will be his savings.
But when his income increases to Rs.1,00,000/- per month, then he will not spend 70% of income (i.e, Rs.70,000/-) on consumption. He will spend less than Rs.70,000/- on consumption. Let's say he spends say Rs.60,000 per month on consumption. Hence, the proportion of income spent on consumption now is 60%. Balance 40% of his income is savings.
This shows that with the increase in income, consumption also increases but the proportion of income spent on consumption decreases. And the proportion of income that goes towards savings increases
No comments:
Post a Comment