Q.State Keynes's Fundamental Psychological Law of Consumption in your own words, and explain why it implies that the Marginal Propensity to Consume must lie between 0 and 1.

The law states consumption rises with income but by a smaller amount; if MPC were 0 or negative, or 1 or more, this proportionate relationship would break down.

Keynes's law states that as income rises, consumption also rises, but by a smaller amount than the rise in income, with the remainder saved. This directly implies MPC must be strictly between 0 and 1: some (not none) of extra income is consumed, and not ALL of it.

Keynes's Fundamental Psychological Law of Consumption states that when a person's (or an economy's) income rises, their consumption expenditure ALSO rises, but by a SMALLER amount than the rise in income itself — people do not spend the full extra rupee they earn; some part of it is set aside as saving.

This directly implies two boundary conditions on MPC:

• MPC must be GREATER than 0: if MPC were 0 (or negative), an increase in income would leave consumption completely unchanged (or even falling) — but ordinary human behaviour and observed economic data show that people DO spend at least SOME part of any extra income they receive, ruling out MPC ≤ 0.
• MPC must be LESS than 1: if MPC were 1 (or more), the ENTIRE (or more than the entire) extra rupee of income would be spent, leaving nothing — or even a negative amount — for saving. Keynes's law specifically asserts that consumption rises by LESS than the full rise in income, which is only possible if MPC is strictly less than 1.

Together, these two conditions give $0<MPC<1$ — a range confirmed both by Keynes's theoretical reasoning and by empirical studies of household spending behaviour across many economies.

Students sometimes state the law loosely as "consumption depends on income" without capturing the crucial LESS-THAN-PROPORTIONATE part — the specific claim that consumption rises by a SMALLER amount than income (not merely that it rises at all) is exactly what pins MPC to be strictly below 1, and is the heart of the law.