Methods of Measuring the Marginal Propensity to Consume
- 1 March 1947
- journal article
- research article
- Published by JSTOR in Journal of the American Statistical Association
- Vol. 42 (237) , 105
- https://doi.org/10.2307/2280191
Abstract
This study deals with statistical principles and methods of deriving estimates of the marginal propensity to consume, from time series of total consumption, income, and investment. It is shown that the method of obtaining the marginal propensity to consume by correlating consumers' expenditure with income is inconsistent with an important branch of current economic theory: the method tends to overestimate the marginal propensity to consume. If, as in some important modern economic theories, investment is regarded as an independent, autonomous variable, the corresponding correct statistical procedure is, first, to obtain the “multiplier” by correlating income with investment, and then, from this estimate of the multiplier, to calculate the marginal propensity to consume. (These results follow from the general principles of the “Simultaneous-Equations Approach,” as developed by the Cowles-Commission for Research in Economics.) Some theoretical results are given also for the alternative case where i...Keywords
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