CH. 10 THE MARGINAL PROPENSITY TO CONSUME 123

effect, subject to time-lag and only after an interval.

The relationship between these two things can becleared up by pointing out, firstly that an unforeseen,or imperfectly foreseen, expansion in the capital-goodsindustries does not have an instantaneous effect of equalamount on the aggregate of investment but causes agradual increase of the latter; and, secondly, that itmay cause a temporary departure of the marginal pro-pensity to consume away from its normal value,followed, however, by a gradual return to it.

Thus an expansion in the capital-goods industriescauses a series of increments in aggregate investmentoccurring in successive periods over an interval oftime, and a series of values of the marginal propensityto consume in these successive periods which differboth from what the values would have been if the ex-pansion had been foreseen and from what they will bewhen the community has settled down to a new steadylevel of aggregate investment. But in every intervalof time the theory of the multiplier holds good in thesense that the increment of aggregate demand is equalto the product of the increment of aggregate invest-ment and the multiplier as determined by the marginalpropensity to consume.

The explanation of these two sets of facts can beseen most clearly by taking the extreme case where theexpansion of employment in the capital-goods in-dustries is so entirely unforeseen that in the first in-stance there is no increase whatever in the output ofconsumption-goods. In this event the efforts of thosenewly employed in the capital-goods industries to con-sume a proportion of their increased incomes will raisethe prices of consumption-goods until a temporaryequilibrium between demand and supply has beenbrought about partly by the high prices causing a post-ponement of consumption, partly by a redistributionof income in favour of the saving classes as an effect ofthe increased profits resulting from the higher prices,