PSYCHOLOGICAL LAW: A principle of consumption behavior proposed by John Maynard Keynes stating that people have the propensity to spend a large fraction, but not all, of any additional income received. This psychological law is a key principle reflected in the consumption-income relation and the marginal propensity to consume that underlie Keynesian economics.

     See also | Keynesian economics | John Maynard Keynes | consumption | consumption line | marginal propensity to consume | marginal propensity to save | multiplier | Keynesian cross | aggregate expenditures |

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The after-tax disposable income of the household sector that is not used for consumption expenditures. Saving primarily involves the use of income to purchase legal claims through financial markets rather than the direct purchase of physical goods and services (which is consumption expenditures). In the circular flow model, saving is the diversion of household income away from consumption expenditures and into the financial markets, which then flows to business investment expenditures and government purchases. Saving is one of two basic uses of disposable income. The other is consumption expenditures.

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