In this article we will discuss about the objective and subjective factors affecting consumption spending.

Objective Factors:

The most important objective factors are the following:

1. The Rate of Interest:

Saving directly depends on interest. When the rate of interest rises saving will increase and consumption will fall. In other words, at high rates of interest people often curtail their consumption voluntarily to save more. Thus the rate of interest affects the consumption spending indirectly.

2. Sales Efforts:

Through various sales promotion measures, such as advertising, it is pos­sible to increase the demand for consumer goods. In practice, advertising has the effect of shifting consumer demand from one product to another.


An increase in total demand from one good may be at the expense of another good, but an increase or decrease in the amount of selling effort may effect the total volume of consumer expenditure, given a fixed level of income.

3. Relative Price:

Changes in relative price can only shift demand from one product to another. But, in some cases, relative price changes might affect aggregate consumption.

4. Capital Gains:

Keynes pointed out that, consumption spending might be influenced by capital gains. This implies that real consumption is influenced by the stock of wealth. The rise in American consumption spending in the late 1920s reflected the realised and unrealised capital gains which were being made in the stock market. In fact, an increase in the perceived wealth of the community might stimulate consumption spending.

5. The Volume of Wealth:

The total wealth of consumer is a possible influence on consumer expendi­ture. This point has been made by A. C. Pigou. He argued that, current utility depends on consumer wealth, current and future (the larger the current wealth the larger, cet. par. will be future wealth, too). The larger the stock of wealth the lower is the marginal utility, and, therefore, the less the strength of desire to add to future wealth through reducing current consumption.


Some economists even argued that, a change in consumers’ money holding which represents a mere change in the composition of a given total of wealth might affect consumption. For example, in times of depression and unemployment the central bank can make open market purchase of securities and get money in exchange. More money holding implies more consumption.

Subjective Factors:

Keynes discussed various motives for consumption such as enjoyment, short-sightedness, generosity, miscalculation, ostentation and extrava­gance. He calls these subjective factors which were liable to significant change in the short run.

Expectations and attitudes:

People’s expectations and attitudes also affect consumption spending. A consumer, who expects an increase either in his income or in the price level, should consume more than one who expects no change or decrease.


Continuously rising prices engender strong expectations of further rise, causing consumers to increase their spending, leading to increased aggre­gate demand, further upward movement of prices, more positive expecta­tions do not affect aggregate consumption.

It is so because different people have different expectations which cancel one another out. Nevertheless, consumer spending can thus fluctuate independently (without having any relation to income) on the basis of consumers’ perception to attitudes and expectations.

The consumers’ general feeling of security or insecurity, their satisfaction or lack of satisfaction with recent economic or political devel­opments, their longer term prognosis for general business conditions (in­cluding the like-hood of a severe depression) all enter into their willingness to make other than routine expenditures.