Economics Questions

Re: How would a mainstream economist justify the marginal propensity to consume/save?

resist272727 — Sat, 20 Nov 2010 21:51:42 GMT

There's not really any proof necessary. It's a statistic. And the evidence that MPC>MPS is derived from statistics. If someone makes a claim that MPC need be higher (namely Keynes) then they do need evidence. And they would not find this evidence in the statistics because MPC was greater than 1 for almost all of 1987 to 2007 and what did we get out of it?

As for the multiplier, it's main problem IMO is that it only works as the velocity of money approaches infinity, when on average the velocity of money is from 1.6 to 2. That's why we get sub-1 multipliers and also why the "stimulus" didn't save the economy. Once again, only my opinion.

How would a mainstream economist justify the marginal propensity to consume/save?

fakename — Sat, 20 Nov 2010 20:54:11 GMT

Basically what proof is there of a propensity to either consume or save? And what evidence is there of the latter being less than the former? I heard a rothbard talk on this where he says that the statistics are basically correlations of themselves but is statistics the only evidence period, of these propensities?

Also, does the circular flow model have a problem namely, that if everyone's income is someone else's spending, then it is impossible to increase output since all that happens is a redistribution of income in the model?

Does the multiplier get out of this difficulty and if it does, does it do so adequately in your opinions?

Thanks