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Unformatted text preview: income rises, basic and urgent wants having been already satisfied, additional consumption at additional income is likely to be smaller in proportion. This explains Keynes hypothesis that as level of income rises (100,200, 500 etc.) consumption expenditure will increase absolutely (C = 80, 150, 350 etc.), but will fall relatively (MPC = 0.8, 0.7 etc.). The effect of consumption behavior has far reaching consequences. Since 'C' is an important component of the effective demand, a progressive fall in its relative value cause a widening gap between 'Y' and 'C' (20,50,150). This is a source of the deficiency in the effective demand and hence a cause of unemployment ....
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10