Meaning: -The factors determining consumption
function (propensity to consume) can be broadly classified into two groups.
(A) Subjective Factors: - The subjective factors are also called as endogenous factors. These factors are
influenced by the psychology of human nature and the institutional arrangement of modern
society. According to Keynes, there are 8 subjective motives that influence
consumption function.
a.
Foresight (b) Avarice (greed) (c) calculation, (d) Enterprise, (e)
Precaution, (f) improvement, (g) Pride, and independence. These
subjective motives restrict individuals from spending their income.
(B)
Objective Factors influencing
the consumption function: - The factors that
influence the consumption function are as follow:
a. Changes in net Income: -According to Keynes, as the income increases, the consumption too
increases but in a lesser proportion.
b. Price Level
changes: - The consumption is inversely related to the
price level. When the prices of the commodities increase, the purchasing power
of the consumers declines and, as a consequence, the consumption decreases.
c. Distribution of
incomes: -An even distribution of income among the
people will result in an overall increase in the consumption.
d. Unexpected
profits and losses: -The unexpected
profits add to and the lowers force a reduction in the consumption.
e. Degree of indebtedness: -The burden of debts and repayment of the borrowed funds along with
interest force individual to reduce the expenditure on the consumption and vice
versa.
f. Credit facility: -Credit facilities and schemes like hire purchase system generate higher
consumption demand for comport and luxury goods.
g. Changes in Expectation: -Low-income and middle income group reduce consumption with a view to
making provision for future.
h. Saving Tendency: - The people with a conservative outlook try to save as much as possible from
their income and thereby reduce consumption.
