114 THE GENERAL THEORY OF EMPLOYMENT BK. III

ment of net investment and the increment of aggregateemployment which will be associated with it. Beforecoming to the multiplier, however, it will be convenientto introduce the conception of the marginal propensityto consume.

I

The fluctuations in real income under considera-tion in this book are those which result from applyingdifferent quantities of employment (i.e. of labour-units)to a given capital equipment, so that real income in-creases and decreases with the number of labour-unitsemployed. If, as we assume in general, there is adecreasing return at the margin as the number of labour-units employed on the given capital equipment isincreased, income measured in terms of wage-unitswill increase more than in proportion to the amount ofemployment, which, in turn, will increase more thanin proportion to the amount of real income measured(if that is possible) in terms of product. Real incomemeasured in terms of product and income measuredin terms of wage-units will, however, increase anddecrease together (in the short period when capitalequipment is virtually unchanged). Since, therefore,real income, in terms of product, may be incapable ofprecise numerical measurement, it is often convenientto regard income in terms of wage-units (Yω) as anadequate working index of changes in real income.In certain contexts we must not overlook the fact that,in general, Yω increases and decreases in a greater pro-portion than real income; but in other contexts thefact that they always increase and decrease togetherrenders them virtually interchangeable.

Our normal psychological law that, when the realincome of the community increases or decreases, itsconsumption will increase or decrease but not so fast,can, therefore, be translated—not, indeed, with absoluteaccuracy but subject to qualifications which are obvious