A reinterpretation of the Keynesian consumption function and multiplier effect

Ryu-ichiro Murota; Yoshiyasu Ono

We propose a microeconomic foundation of the multiplier effect and that of the consumption function using a dynamic optimization model that explains a shortage of aggregate demand and unemployment. We show that government purchases boost aggregate demand through a multiplier-like process but that the implication is quite different. It works through not an increase in disposable income but moderation of deflation, which makes money holding costly and stimulates consumption. -- Keynesian consumption function ; multiplier effect ; Keynesian Cross ; persistent unemployment ; aggregate demand

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Year of publication:	2010
Authors:	Murota, Ryu-ichiro ; Ono, Yoshiyasu
Publisher:	Osaka : Inst. of Social and Economic Research
Subject:	Konsumtheorie \| Consumption theory \| Keynesianismus \| Keynesian economics \| Multiplikator \| Multiplier \| Langzeitarbeitslosigkeit \| Long-term unemployment \| Gesamtwirtschaftliche Nachfrage \| Aggregate demand \| Theorie \| Theory