 Uncertainty and Consumption in Keynes's Theory of Effective DemandSven Larson Review of Political Economy, 2002, vol. 14, issue 2, 241-258 Abstract: Keynesian uncertainty normally exercises influence over effective demand via private investment. This paper expands the scope of influence of uncertainty to comprise private consumption as well. When private spending is explicitly made subject to uncertainty the individual consumer is forced to take active steps to make the future predictable. Contracted, sticky money prices are key tools in the consumer's efforts to keep uncertainty at a minimum and match earnings with consumption costs. However, even if prices are successfully contracted there is still need for preparedness against contingencies. Consumers therefore regulate their propensity to consume with reference to their confidence in the future: the propensity to consume is high when confidence is strong and low when confidence is weak. Because of its effect on the propensity to consume, consumer confidence exercises a significant influence on macroeconomic activity in general. Date: 2002 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:revpoe:v:14:y:2002:i:2:p:241-258 Ordering information: This journal article can be ordered from DOI: 10.1080/09538250220126546 Access Statistics for this article Review of Political Economy is currently edited by Steve Pressman and Louis-Philippe Rochon More articles in Review of Political Economy from Taylor & Francis Journals |
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