What is consumption function Consumption function shows what expenditure consumers will wish to make on consumers goods and services at each possible level of income Determinants of consumption function ID: 491166
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Consumption functionSlide2
What is consumption function?
Consumption function shows what expenditure consumers will wish to make on consumer’s goods and services at each possible level of incomeSlide3
Determinants of consumption function
Subjective factors
Objective factorsSlide4
Subjective factors
Farsightedness
Economic independence
Occupational motive
Miserliness
Status in society
Precautionary motive
Extension of business
Liquidity preference
Financial prudence
modernizationSlide5
Objective factors
Change in money income
Change in real income
Windfall gains and losses
Expectations
Fiscal policy
Wages
Liquid assets
Attraction of new products
Availability of goods
Change in population
Duesenberry
hypothesisSlide6
Psychological law of consumption
Assumptions-1)no change in psychological and institutional complex
2)normal conditions
3)laissez faireSlide7
ExplanationSlide8
Importance of law
Importance to investment
Refutation of say’s law
Decline in MPC
Underemployment equilibrium
Over saving gap
Movement of trade cycles
Secular stagnation
State intervention
Inducement to investSlide9
Measures to raise propensity to invest
Redistribution of income
Social security
Credit facilities
Increase in population
Demonstration effect
Advertisement
Means of transportSlide10
Criticism of propensity to consume
No proper use of propensity
Simple truism
Unrealistic
Not secular
It is a fraud