Keynes held that it was mainly current income that determined the demand for consumer goods and services. He also suggested wealth, interest rates, and taxes may have smaller effects. Later theories by Modigliani and Friedman, based on long term average income as the income variable determining...

In the Keynesian consumption function, current income is asserted to be the main determinant of consumption. This paper examines the extent to which the Keynesian consumption function explains 1960 - 2000 U.S. consumption patterns. The results are compared to the longer term average income...

Regression estimates of exchange rate total effects on aggregate demand are broken into separate income and substitution effects. Total effects estimates can seem contrary to theory. Separating them into their two components shows this is not the case. The separation method also provides a...

This paper seeks to identify the major factors that affect the demand for investment goods in the United States. A review of Keynes’ theoretical literature on investment and previous empirical studies identified eight possible variables for testing. The testing procedure was stepwise linear...

Falling exchange rates reduce the purchasing power of the dollar, increasing import prices. Higher import prices have two effects. (1) A substitution effect that shifts demand from imported to domestically produced goods. (2) An income effect that reduces the total amount of real income...

Rising exchange rates can lower prices on imported consumer goods. The lower prices have two effects. A substitution effect shifts in demand from domestically produced goods to imports. An income effect also allows more import purchases. It also allows some income previously spent on imports to...

Do interest rates effect investment and the GDP? If so, which ones, and by how much? Research on this topic over 5 decades has produced conflicting results. Yet, this question is of critical importance to the viability of Keynesian macroeconomics. This paper attempts to explain why results have...

This paper examines the extent to which changes in imports or exports of U.S. consumer goods and services occurs in response to a change in the exchange rate, 1960 -2000. The data used are taken from the Economic Report of the President, 2002. The findings indicate that an increase in the trade...

Falling exchange rates reduce the purchasing power of the dollar, increasing import prices. Higher import prices have two effects. (1) A substitution effect that shifts demand from imported to domestically produced goods. (2) An income effect that reduces the total amount of real income...

Falling exchange rates reduce the purchasing power of the dollar, increasing import prices. Higher import prices have two effects. (1) A substitution effect that shifts demand from imported to domestically produced goods. (2) An income effect that reduces the total amount of real income...