Explain the keynes psycological law of consumption asumptions.

1.	Explain the keynes psycological law of consumption asumptions.
Answer» Keynes’s Law is based on the following assumptions: (i) Ceteris paribus (constant extraneous variables): The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone. (ii) Existence of Normal Conditions: The law holds good under normal conditions. If, however, the economy is faced with abnormal and extraordinary circumstances like war, revolution or hyperinflation, the law will not operate. People may spend the whole of increased income on consumption. (iii) Existence of a Laissez-faire Capitalist Economy: The law operates in a rich capitalist economy where there is no government intervention. People should be free to spend increased income. In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Answer»

Keynes’s Law is based on the following assumptions:

(i) Ceteris paribus (constant extraneous variables): The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

(ii) Existence of Normal Conditions:

The law holds good under normal conditions.
If, however, the economy is faced with abnormal and extraordinary circumstances like war, revolution or hyperinflation, the law will not operate.
People may spend the whole of increased income on consumption.

(iii) Existence of a Laissez-faire Capitalist Economy:

The law operates in a rich capitalist economy where there is no government intervention.
People should be free to spend increased income.
In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Explain the keynes psycological law of consumption asumptions.

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