ABSTRACT
The mechanisms by which the national income is distributed between consumption and investment in the Free Enterprise system is competition. J. M. Keynes believed that consumption depends on investment, but that investment is exogenously determined; that investment depends on the decisions of one group of people, and saving on another group. Capitalists' income is maintained without regard to how they spend it, which means that the volume of investment at any given level of technology determines the division of labour between the production of consumer goods and investment. The recursive process involves the Marginal Propensity to Consume and the Multiplier. The improvements to the interpretation of the interaction of the multiplier with the acceleration principle are very illuminating and relevant for the explanation of the conventional business cycle. The economic growth with full employment requires that effective demand increases in line with productivity.
