6) Where a is autonomous consumption
, b is the marginal propensity to consume, c is autonomous investment, d is the interest sensitivity of investment, e the is sensitivity of money demand to income, f is the sensitivity of money demand to the interest rate, and M is the real money supply.
The second part is an Appendix in which Harcourt explains the significance for Harrod's system of the Oxford economist's abandonment of the autonomous consumption component in the Keynesian consumption function.
One referee commented on a draft of this note that, though Keith mentioned the issue, he never discussed how crucial it was for the derivation of Harrod's result that Harrod dropped the autonomous consumption term from Keynes's consumption function.
0] is autonomous consumption
, Y is aggregate income, and T is tax revenue.
is an autonomous consumption
component, b is the marginal propensity to consume, T is taxes net of transfers for all levels of government, and Y is income derived from local production; in Model 1 all income generated by E accrues to local residents by assumption.
Since autonomous consumption
is usually zero, consumption is therefore proportional to income.
In all equations, the autonomous consumption
is insignificant, indicating the existence of a long-run consumption relationship.