Fundamental psychological law
The fundamental psychological law (after John Maynard Keynes ) consists of two assumptions about the increase in consumption , depending on an increase in income. These assumptions are:
- Increased income always results in increased consumption.
- The absolute increase in consumption is less than the increase in income that causes it. (In other words: a lower percentage of the additional income is spent than the previous income)
These two assumptions are incorporated into the marginal propensity to consume .
Note: The term fundamental is not undisputed, which is also related to questions of acceptance of Keynesianism .