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Measure to increase propensity to consume


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n economics consumption means the amount spent by a consumer to consume goods and services at a given level of income. There is positive relationship between income and consumption. The consumption varies with income that means consumption increases with the increase in income and vice versa. That means the propensity to consume shows how the consumption expenditure varies with change in income.

  1. Redistribution of income: The poor people have relatively more propensity to consume. Hence the income should be redistributed in favor of poor people to increase the propensity to consume. For this the progressive tax, which falls heavily on rich people, should be leaved on income, expenditure, wealth and profit. Beside that government should lunch the public expenditure program such as free education, free medical care facility, free housing for the poor as well should create employment opportunities.
  2. Liberal wage policy: The government should adopt liberal wage policy to increase the propensity to consume. The increase in wage rate increases the living standard of a large number of people and increases their propensity to consume. But marginal productivity of labour should also increase with increase in wage rate. Because, the increase in wage rate tends to increase the price level and unemployment.
  3. Comprehensive social security: The government should provide various social security services like health insurance, pension, unemployment insurance etc. These increase propensity to consume by increasing the feeling of security.
  4. Credit facility: The availability of credit facilities increase the propensity to consume. If credit and installment facility is provided it helps liberal people to consume various expensive and durable goods like TV set, motorbike, cars etc.
  5. Development of means of transportation: Development of means of transport facility also helps to increase propensity to consume as different commodities are available due to transport facilities.
  6. Urbanization: Generally the consume propensity of urban area is greater than rural area. So if the rural areas are converted into urban cities than the consumer of these areas imitate the consumption pattern of urban areas. Hence the consumption function will increase.
  7. Advertisement and publicity: Advertisement provides information to the consumer about goods and services. So the people will attracted towards the goods and they purchase. So propensity to consume may increase.
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