Question

Explain any three subjective and objective factors influencing the consumption function.

Answer 1

Subjective Factors:

1. The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness. ,
2. The motive of foresight: The desire to provide for anticipated future needs. e.g. Old age.
3. The motive of calculation: The desire to enjoy interest and appreciation. Consumption and Investment Functions.

Objective Factors:

1. Income Distribution:
   If there is large disparity between rich and poor, the consumption is low because the rich people have a low propensity to consume and high propensity to save.
2. Price level:
   Price level plays an important role in determining the consumption function. When the price falls, real income goes up; people will consume more and propensity to save of the
   society increases.
3. Wage level:
   Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption. Consumption expenditure increases with the rise in wages. Similar is the effect with regard to windfall gains.