Determinants of the Level of National Income and Employment:

Psychological Law of Consumption:

J.M. Keynes, in his book ‘General Theory’ analyzed the consumption behavior of the community on the basis of human psychology. He propounded a law which is known as Psychological Law of Consumption. Continue reading.

Propensity to Consume:

The classical economists were of the view that the supply of saving was determined by the rate of interest prevailing in the country. According to them, the higher the rate of interest, the larger is the saving and so less is the consumption. Continue reading.

Determinants of the Consumption Function:

There are a number of determinants/factors both subjective and objective which determine the position of consumption function. The factors or causes of shifts in consumption function are as fallows: Continue reading.

Concept of Saving:

The income not spent on consumption is defined as Saving. Saving is the act of not consuming all of one’s current income. Whatever is not consumed out of disposable income is by definition saving. Continue reading.

Concept of Propensity to Save/Saving Function:

The propensity to save schedule which for the sake of brevity is called the propensity to save or saving function shows relation between saving and disposable income at varying levels of income S = F(Y). Continue reading.

Concept of Investment:

Investment is an important component of national income. It plays an important role in the determination of equilibrium level of national income and corresponding level of employment. When the term investment is used in economics, it refers to the: Continue reading.

Concept of Marginal Efficiency of Capital (MEC):

Marginal efficiency capital (MEC) is a Keynesian concept. According to J.M. Keynes, nations output depends on its stock capital. An increase in the stock of capital increases output. The question is how much increase in investment raises output? Well, this depends on the productivity of new capital i.e. on the marginal efficiency of capital. Continue reading.

Factors on Which Marginal Efficiency of Capital Depends:

The producer's decision as to whether or not, he should undertake a given investment project is arrived at by comparing marginal efficiency of capital (MEC) with the market rate of interest (or the cost of funds). Continue reading.

Concept of Employment and Full Employment:

By employment is meant an engagement of a person in some occupation, business, trade or profession, etc. The nation of desiring to be employment can be explained by taking three established facts: Continue reading.

Full Employment:

The concept of full employment has been defined differently by different economists. Lord Beveridge defines full employment as: Continue reading.