Question

Keynes theory is associated with

• A. Effective propensity to demand
• B. Propensity to consume
• C. Propensity to save
• D. All of these

Hint:

Keynes's theory revolves around what people do with their income: they either spend it (propensity to consume) or save it (propensity to save). These behaviors together determine the level of effective demand.

Answer 1

The Correct Option is D

Keynesian economics is built upon several core concepts related to aggregate demand:

(A) Effective Demand: This is the central pillar of Keynes's theory. It's the point where aggregate demand equals aggregate supply. He argued that employment levels are determined by the level of effective demand.
(B) Propensity to Consume (MPC): Keynes introduced the "psychological law of consumption," stating that as income rises, consumption also rises, but not by as much. The relationship between consumption and income is the propensity to consume.
(C) Propensity to Save (MPS): This is the counterpart to the propensity to consume. The portion of additional income that is not consumed is saved. (\(MPC + MPS = 1\)).
All these concepts are integral to Keynes's framework for analyzing the economy.