What Is the Keynesian Model?

The Keynesian Model is an effective demand theory that Keynesian has made significant amendments to under the situation of various economic contradictions that the Keynesian had during the economic crisis period.

Keynes model

Consumption function

1. Consumption tendency

Keynes called the proportion of consumption in income as consumption tendency. Average consumption tendency refers to the proportion of total consumption in total income. That is: APC = C / Y marginal consumption propensity refers to the proportion of the increase in income used for consumption expenditure, that is, the ratio of consumption increase to income increase.

That is: MPC = C / Y or b = C / Y.

2. Consumption function and consumption curve

, consumption function

The consumption function refers to the dependency relationship between people's consumption expenditure and various factors that determine consumption. The consumption function is expressed by the equation: C = f (Y).

, savings function

Savings are the part of people's income that is not used for consumption, or all income that is not spent on current goods and services.

1. Savings tendency

Keynes called the ratio of savings to income the tendency to save.

The average saving tendency refers to the proportion of savings in income at a certain level, that is, the ratio of total savings to total income. That is: APS = S / Y

. Marginal saving propensity refers to the proportion of the part of increased income used for saving, that is, the ratio of incremental savings to incremental income. That is: MPS = S / Y