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Keynes held that, mainly, it was current income that determined the demand for consumer goods and services. He also suggested wealth, interest rates, and taxes may have smaller effects. Little systematic testing has occurred in recent decades to determine what really is in the consumption function, and what the relative importance of different variables is; Macroeconomics textbooks are decidedly ambiguous in answering these questions, presumably for lack of adequate testing. This paper econometrically tests the relative impact on consumption of different variables in Keynes original hypothesis and compares Keynes to the Friedman/Modigliani hypotheses as well.
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