Question

Answer the following questions:

State the subjective factors determining consumption function?

Answer 1

Consumption function is affected by many subjective factors or the psychological factors. Such factors vary from person to person and are based on a person’s personal decisions. According to Keynes, there are eight subjective motives which prevent an individual from current consumption.

i. Motive of precaution: People save money for the future in order to meet unexpected expenditure.
ii. Motive of foresightedness: People cut down their spending in order to meet future requirements for money. For examples, requirements for higher education, marriage, buying a house etc.

iii. Motive of improvement: Individuals cut down their expenditure to improve their standard of living.

iv. Motive of independence: As per this motive, people save more in order to depict more power and independence.

v. Motive of pride: Another motive that prevents people from spending is the wish to maintain the same economic stability in the future. Providing some wealth to their future generations or making donations gives them a feeling of pride.

vi. Motive of enterprise: People prevent current consumption and save for the purpose of investing. Under this motive, people save to invest in a profitable enterprise.

vii. Motive of calculation: Under this motive, people save to invest in shares and debentures in order to increase their income.

viii. Motive of avarice: Some people have a habit of abstaining from expenditure and consumption.