248 THE GENERAL THEORY OF EMPLOYMENT bk. iv

There will be an inducement to push the rate ofnew investment to the point which forces the supply-price of each type of capital-asset to a figure which,taken in conjunction with its prospective yield, bringsthe marginal efficiency of capital in general to ap-proximate equality with the rate of interest. That isto say, the physical conditions of supply in the capital-goods industries, the state of confidence concerningthe prospective yield, the psychological attitude toliquidity and the quantity of money (preferably calcu-lated in terms of wage-units) determine, between them,the rate of new investment.

But an increase (or decrease) in the rate of invest-ment will have to carry with it an increase (or decrease)in the rate of consumption; because the behaviour ofthe public is, in general, of such a character that theyare only willing to widen (or narrow) the gap betweentheir income and their consumption if their income isbeing increased (or diminished). That is to say,changes in the rate of consumption are, in general,in the same direction (though smaller in amount) aschanges in the rate of income. The relation betweenthe increment of consumption which has to accompanya given increment of saving is given by the marginalpropensity to consume. The ratio, thus determined,between an increment of investment and the corre-sponding increment of aggregate income, both measuredin wage-units, is given by the investment multiplier.

Finally, if we assume (as a first approximation) thatthe employment multiplier is equal to the investmentmultiplier, we can, by applying the multiplier to theincrement (or decrement) in the rate of investmentbrought about by the factors first described, infer theincrement of employment.

An increment (or decrement) of employment isliable, however, to raise (or lower) the schedule ofliquidity-preference; there being three ways in whichit will tend to increase the demand for money, inasmuch