Measure to Raise Propensity to Consume
The following measure to raise the propensity to consume in the long period:
1. Income Redistribution: The propensity to consume of poor people is higher than the propensity to consume of rich people. Therefore, redistribution of income helps to raise the propensity to consume if redistribution of income favors the poor. Thus, the propensity to consume can be raised transferring income from the rich to the poor. Three methods have been suggested.
They are:
(a) Increasing productivity of lower-income groups. It invokes the adoption of certain measures to improve employment opportunities, working conditions, public health, housing and educational facilities for the lower-income groups.
(b) Increasing the purchasing power of lower-income groups through such measures as reductions in the cost of living through price-cuts and subsidies.
(c) Transferring purchasing power from the higher-income groups to the lower-income groups through such measures as progressive taxation, death duties, capital gains taxes, etc., the spending of revenues so collected for the benefit of the poorer classes in the form of relief and welfare expenditure or even on the provision of social services.
2. Wage policy: Wage rates are considered a measure to raise consumption in both short-run and long-run point of view. But in the short-run, labor productivity can’t be increased more will harm the laborers more than benefit because increased wages will increase cost which may lead to unemployment. Thus in the long-run, if the wage rate and productivity of labor both are increased in some way then it will tend to raise the level of consumption in the economy.
3. Social Security: Various types of social security measures raise the propensity to consume in the long run. For example provision for unemployment compensation, old-age allowance, widow allowance, etc., remove uncertainties in the future. Therefore, the tendency to save is reduced and people start to consume more. A well-devised system of social security can also be an instrument for raising the propensity to consume. At a time of depression when the investments decline, the consumption expenditure also declines, thereby lowering the propensity to consume.
4. Other Measures: Following are the other measure suggested to raise the consumption functions:
(a) Easy credit facilities:
Consumption function shifts upward with the help of cheap and easy credit facilities. Easy credit facilities may be provided to the consumers for the purchase of durable consumers’ goods, such as radio sets, automobiles, etc. in a wealthy industrial community.
(b) Advertisement and publicity:
In modern times, advertisement and publicity, propaganda and salesmanship are effective tools to attract consumers towards commodities because these make the consumers familiar with the use of the product. It raises the consumption function of people.
(c) Development of infrastructures:
The development of infrastructures like transport, communication, hydropower, etc., helps to shift consumption function upward.
(d) Urbanization:
In urban areas, people are highly influenced by the demonstration effect. This shifts the consumption function upward. The muralist is generally contented with few essential goods in view of their depressed living standards.
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