Understanding Economics and Politics

Consumption Theory and Keynes' Simple Principle

Keynes-Clower-Wu Income Growth Theory

Keynes-Clower-Wu Income Growth Theory provides a consumption theory, combining theory and empirical evidence. For instance, neoclassical economists cannot easily explain overconsumption and consequently dissaving. Or why one country has households saving much more and then after just a few years start saving less, and vice versa. With the analysis of employment and labor income growth, one can understand that changes in savings are the direct consequence of errors in "presumed" optimal consumption.

As such, the following chart will show some of the issues we will discuss:

The relating saving to income and consumption is given by,

Saving = Income - Consumption

The questions are,

  • what variables affect income?

  • what is the relationship between income and consumption?

Theories behind consumption theory

In each section, we will analyze Hall's random walk, Wu's new consumption result, Keynes' simple principle and then Clower's Dual-Decision Hypothesis. We finish by showing the effect of trade on saving and the main determining factor driving U.S. presidential elections.

About the Author: A Career Spent on Studying Consumption Theory and Developing Growonders Complete Nutrients Technology

What is the relationship between consumption and income?