Keynes' Law of Consumption

Keynes Law of Consumption Assignment Help

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Assumptions of Keynes' law of consumption

  • It is assumed that the habits of the people regarding spending and saving do not undergo and change. In other words, it is assumed that the propensity to consumption does not change. It has been verified by certain observation that propensity to consume remains fairly stable over a short period to change their consumption habits.
  • The second assumption behind the law of consumption is that this law would operate only under normal condition. Any abnormal condition like war or hyper inflation would make the law inoperative. The psychology of the people itself changes during such abnormal circumstances and thus the law may not hold true.
  • The third assumption relating to the law of consumption is the existence of a capitalist economy where the state regulates or controls consumption, this law would not hold good. If the government imposes restrictions on consumption, the question of choosing and saving does not arise.


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