A Reinterpretation of the Keynesian Consumption Function and Multiplier Effect

12 Pages Posted: 8 Jun 2010

See all articles by Ryu-ichiro Murota

Ryu-ichiro Murota

Kindai University

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: June 8, 2010

Abstract

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.

Keywords: Keynesian Consumption Function, Multiplier Effect, Keynesian Cross, Persistent Unemployment, Aggregate Demand

JEL Classification: E12, E24, E62

Suggested Citation

Murota, Ryu-ichiro and Ono, Yoshiyasu, A Reinterpretation of the Keynesian Consumption Function and Multiplier Effect (June 8, 2010). ISER Discussion Paper No. 779. Available at SSRN: https://ssrn.com/abstract=1622036 or http://dx.doi.org/10.2139/ssrn.1622036

Ryu-ichiro Murota

Kindai University ( email )

3-4-1 Kowakae
Higashi-Osaka City, Osaka 577-8502
Japan

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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