With the increase in income, both consumption and savings increase.

Ans. Lord J.M: Keynes explains the relationship between consumption (C) and income (Y), in terms of his psychological law of consumption. According to this law, as aggregate income increases, the total consumption expenditure in the economy also increases, but in a lesser proportion than the increase in income. In other words the proportion of income spent on consumption goes on falling as income increases.


This is because as income increases, the individual wants are satisfied to a larger and larger extent. So when income increases further, people do not consume the entire income. They save a part of it. Hence, there is bound to be a gap between income and consumption. According to Keynes, with the increase in income, both consumption and savings increase.