The Psychological law of consumption states that
- Proportionate increase in consumption is less than proportionate increase in income
- Increase in income equal to increase in consumption
- Increase in consumption is greater than increase in income
- Consumption does not change with change in income
According to the simple psychological facts we can say that tenancy of the people is to consume more when earnings or income increases.
Keynes’ Psychological Law of Consumption:
- Proportional increase in consumption is less than proportional increase in income.
- An increase in income is always bifurcated into spending and savings.
- An increase in income will lead to increase in both consumption and savings.
These rules always works in normal conditions irrespective of time and community.