In case, people save more and spend less, then the consumption function will shift downward. (xiii) Attitude Towards Saving: If a community is consumption oriented, there will be less saving in the country. Persons living in cities, for instance, spend more than those living in rural areas. (xii) Demographic Factors: The consumption function is also influenced by demographic factors like size of family, occupations, place of residence etc. The unexpected losses in the stock market lead to the downward shifting of the consumption curve. (xi) Windfall Gains: If there are unexpected gains due to stock market boom in the economy, it tends to shift the consumption function upward. (x) Consumer Indebtedness: In case the consumer are heavily indebted and they pay bigger monthly instalments to replay the dept, then propensity to consume is low or the consumption function shifts downward and vice versa. The consumption function shifts upward and vice versa. (ix) Stock of Liquid Assets: If the consumer have greater amounts of liquid assets there will be more desire for the households to spend out of disposable income. (viii) Higher Living Standard: If the real income of the people increases in the country and people adopt the use of new produce like television, washing machines, refrigerators, care, etc., the consumption function is high. (vii) Credit Facilities: Cheap credit facilities are available in the country, the consumption function will move upward. If they are scarce and are priced very high, then the propensity to consume will decline. If the goods are available in abundance, then the propensity to consume increases. (vi) Availability of Goods: Propensity to consume is also affected by the availability of consumption goods. So we conclude that an increase in the rate of interest generally reduces propensity to consume or shifts the consumption function downward and a fall in the rate of interest usually helps to the increase of propensity to consume or shifts the consumption function upward. On the other hand, when the interest rate is reduced, it usually encourages expenditure as lending then becomes less attractive. When the interest rate is raised, it generally induces people to decrease expenditure and save more for lending purposes. (v) Change in the Rate of Interest: A change in the rate of interest exercises influence on the propensity to consume. If the nature of taxes is such that they directly affect the poor people and reduce their income, then the propensity to consume is high and if rich persons are not taxed at a progressive rate and they accumulate more wealth, then the propensity to consume is low. (iv) Changes in Fiscal Policy: Taxes also play an important part in influencing the propensity to consume. When they are expected to be low, the propensity to consume decreases or the consumption function shifts downward. So we can say that when prices are expected to be high in future, the propensity to consume increases or the consumption function shifts upward. (iii) Expectation Change in Price: If people expect prices are going to rise in near future, they hasten to spend large sum out of a given income just after the promulgation of first Martial Law in our country. An equal distribution of wealth raises the propensity to consume. People with low income group have high propensity to consume and rich people low propensity to consume. (ii) Distribution of Wealth: If there is unequal distribution of wealth in a country, the consumption function will also be unequal. When real income of the community increases, consumption expenditure also increases but by a smaller amount. (i) Real Income: Real income is the basic factor which determines community’s propensity to consume. The undergo rapid changes and bring market in the consumption function. The objective factors are external to economic system. ![]() The subjective factors do not undergo a material change over a short period of time. The subjective factors include characteristics of human nature, social practices which lead households to refrain or activate to appending out of their income.įor example, religious belief of the people towards spending, their foresight attitude towards life, level of education, etc., directly affect propensity to consume or determine the slope and position of the consumption curve. ![]() (i) Psychological Characteristics of Human Nature: The subjective factors affecting propensity to consume are internal to the economic system. The factors or causes of shifts in consumption function are as fallows: (1) Subjective Factors: There are number of factors (determinants) both subjective and objective which determine the position of consumption function.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |