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Consumption function

Consumption function. 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 income. Determinants of consumption function. Subjective factors Objective factors. Subjective factors.

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Consumption function

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  1. Consumption function

  2. 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 income

  3. Determinants of consumption function Subjective factors Objective factors

  4. Subjective factors • Farsightedness • Economic independence • Occupational motive • Miserliness • Status in society • Precautionary motive • Extension of business • Liquidity preference • Financial prudence • modernization

  5. 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 hypothesis

  6. Psychological law of consumption • Assumptions-1)no change in psychological and institutional complex • 2)normal conditions • 3)laissez faire

  7. Explanation

  8. 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 invest

  9. Measures to raise propensity to invest • Redistribution of income • Social security • Credit facilities • Increase in population • Demonstration effect • Advertisement • Means of transport

  10. Criticism of propensity to consume • No proper use of propensity • Simple truism • Unrealistic • Not secular • It is a fraud

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