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Discuss the factor effecting consumption function.
⇒Subjective factor:
- Calculation: This is the motive to save more for having a specified interest income in further.
- Enterprise: This is the motive to set up new enterprise
- Independence: This is the motive to secure financial independence.
- Pride: This is the motive of bequeathing large amounts of assets in inheritance.
- Miserliness: This is the motive to save more to satisfy the habitual miserly urge.
- Changes in money income: An increase in the money income means more units are available for spending. As a result, the consumption expenditure increase and vice-versa.
- Change in real income: Give the money income a full in the level of prices signifies an increase in real income or the real purchasing power of the people. That causes upward shifts in the consumption function and vice-versa.
- Wealth: Larger the amount of wealth with a person, lesser is the desire to accumulate more wealth and therefore lesser is the desire to accumulate more wealth and therefore less will be the desire to save. In such a situation, consumption spending is likely to be higher and vice versa.
- Expectations about future: If prices are expected to rise in future, people will start making anticipatory in future, people will start making anticipatory purchases for the future. As a result, there will be feverish consumption spending and vice versa.
- Rate of interest: A rise in rate of interest can be lower the asset. Prices and cause capital losses. As incomes fall, the people may be forced to reduce consumption and vice versa.
