Question

explain the economic ideas behind the parametric constraint or restriction on the marginal propensity to consume, in the Keynesian model.

Answer 1

Answer - As per the theory given by Keynes , the value of MPC is essential in estimating the growth in the economy. According to him , if the estimate of the MPC of consumer can be estimated beforehand , then the estimated consumption can also be calculated for the economy which would be resulted because of increase in income. Hence , it can then be calculated that hiw much money has to be injected into the economy. As per Keynes ,

1 - People at lower MPC , tend to save more thus the expansion in the income would result in greater savings and have lesser effect on the consumption.

2 - People with higher MPC , tend to consume most of their income and save less. Hence if their income in increased while adding money in economy , the consumption would flourish and have a positive effect on GDP.