Measures to Raise the Propensity to Consume

Measures to Raise the Propensity to Consume

            In the short period due to psychological and institutional factors, it is very difficult to stimulate consumption function which possible in long-run measures to raise propensity to consume in long run are as follows:

1.   Income Redistribution:

            Propensity to consume of poor people is higher than propensity to consume of rich people. Therefore, redistribution of income helps to raise propensity to consume if redistribution of income favours poor. Thus, propensity to consume can be raised transferring income from the rich to poor.

2.   Social security:

            Various type of social security measures raise propensity to consume in long run. For example provision for unemployment compensation, old age allowance, widow allowance, etc., remove uncertainties in future. Therefore, tendency to save is reduced and people start to consume more.

(3)  Wage policy:

            Wage rates are considered measure to raise consumption in both short-run and long-run point of view. But in short run, labour productivity can't be increased more will harm the labours more than benefit because increased wages will increase cost which may lead to unemployment. Thus in long-run, if wage rate and productivity of labour both are increased in same way then it will tend to raise level of consumption in economy.

(4)  Easy credit facilities:

            Consumption function shifts upward by the help of cheap and easy credit facilities.

(5)  Advertisement and publicity:

            In modern time, advertisement and publicity, propaganda and salesmanship are effective tools to attract consumers towards commodities because these make the consumers familiar with use of product. It raises consumption function of people.

(6)  Development of infrastructures:

            Development of infrastructures like transport, communication, hydropower, etc., helps to shift consumption function upward.

(7)  Urbanization:

            In urban areas people are highly influenced by the demonstration effect. This shifts the consumption function upward.