Promissory Note Defined

Promissory Note Defined

Promissory Note, defined by the Bills of Exchange Act, 1882, as an unconditional promise in writing made by one person to another signed by the maker engaging to pay on demand or at a fixed or determinable future time a stated slim of money to or to the order of a specified person or to the bearer. It differs from a bill of exchange or cheque since there are only two parties instead of three. The maker of the note is primarily liable; the drawer of a bill is liable only if it has been negotiated and if the person or institution on whom it is drawn does not accept or pay the bill.

Propensity to Consume, the relationship between consumption spending and the income that gives rise to it. The concept was evolved by Keynes in his General Theory of Employment, Interest and Moneyin 2013. Assuming that no changes take place in a family's capital wealth that might affect its consumption spending, and that other 'outside' influences such as the level and distribution of taxation and Government controls remain unchanged, the level of consumption spending is taken to depend on the level of income (both being measured in real terms). This relationship is called 'the consumption function' or 'the propensity to consume'. For the community as a whole it is thought to depend upon 'subjective' or psychological attitudes towards thrift, business attitudes towards dividend distribution and the accumulation of reserves, and the way in which income is distributed in the community. Keynes's central proposition is that whenever income increases (or decreases), consumption spending will also increase (or decrease) but not by as much as the change in income. In other words the marginal propensity to consume (the proportion of an increment of income spent on consumption) is considered to be a proportion less than one or less than 100 per cent.

The importance of this concept for Keynes's theory of total employment and output in the community is that if for any reason economic activity (and thus employment and income) increases, the additional consumption spending generated would be insufficient to sustain employment and income at the new level unless non-consumption spending was simultaneously increased to fill the 'gap' caused by part of the increased income being saved and not spent on consumption. This gap demonstrates the importance of investment (non-consumption) spending in determining the level of output, employment and income. By the same token, an autonomous increase in investment spending by businesses will raise employment and income, which will (through the marginal propensity to consume) raise consumption spending and thus employment and income again, and so on in a chain or multiple fashion. The extent of these induced changes in spending will depend on the size of the marginal propensity to consume, which thus forms the basis of Keynesian 'multiplier' theory. 91

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

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