Keynes' Law and Its Critics*
نویسنده
چکیده
Keynes' Law and Its Critics. Critics of Keynes' "fundamental psychological law" that the rate of current consumption declines with increases in current income claimed it was incomplete, produced incorrect predictions and emphasized the wrong spending behavior. These objections involve confusion over the effects of individual and average data on spending estimates. When data types are carefully distinguished, Keynes' proposition is consistent with both cross sectional and time series observed behavior. Confusion also surrounds the distinction between transitory and permanent incomes. While valid for individuals, the concepts can not be used for cross sectional behavior unless all households have the same permanent income, an implausible situation. The paper concludes that Keynes' Law remains a valid construct, spending differences exist conjointly, and multiple aggregate consumption theories seem probable. JEL Classification: E2, B3
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