Free

The Consumption Function - Research Paper Example

Summary

In contrary, the vital components that explain the consumption expenditure are majorly wealth, disposable income , expected in…

Download full paper File format: .doc, available for editing

GRAB THE BEST PAPER94.1% of users find it useful

Read Text Preview

Subject: Macro & Microeconomics
Type: Research Paper
Level: College
Pages: 1 (250 words)
Downloads: 2
Author: haagjanis

Extract of sample "The Consumption Function"

The Consumption Function According to UN data, most countries have considered consumption expenditure as the most tangible element of the gross domestic product (GDP). In contrary, the vital components that explain the consumption expenditure are majorly wealth, disposable income , expected in future income the price level and the underlying interest rates.Countryconsumption expenditurereal GDP (proxy for disposable income)in (US. million dollars)GDP deflator (proxy for price level)in (US.

million dollars)lending interest ratein (US. million dollars)1. Afghanistan8,063,703,59115010.9Na2. Albania8,414,732,1771243.513.13. Algeria46,657,966,5167716.18.04. Angola16,610,257,6666826.867.75. Antigua and Barbuda845,962,8151144.311.46. Argentina133,117,224,547948.86.27. Armenia4,114,120,6931143.218.08. Aruba1,767,184,3581094.211.59. Australia521,456,923,7711033.79.110. Austria223,568,537,034962.0Na11. Azerbaijan6,414,194,5319016.117.012. Bahamas5,976,162,0001035.15.513. Bahrain8,589,827,7758113.77.814.

Bangladesh49,389,772,3581065.114.015. Barbados3,498,300,0001086.69.216. Belarus21,397,284,8249918.911.417. Belgium279,746,803,960962.46.718. Belize997,400,0001082.314.319. Benin3,870,536,0141074.4Na20. Bhutan612,218,8641255.914.021. Bolivia7,858,227,8709716.622. Bosnia and Herzegovina12,908,699,2701409.6Countryconsumption expenditurelending interest ratein (US. million dollars)23. Afghanistan8,063,703,591Na24. Albania8,414,732,17713.125. Algeria46,657,966,5168.026. Angola16,610,257,66667.727.

Antigua and Barbuda845,962,81511.428. Argentina133,117,224,5476.229. Armenia4,114,120,69318.030. Aruba1,767,184,35811.531. Australia521,456,923,7719.132. Austria223,568,537,034Na33. Azerbaijan6,414,194,53117.034. Bahamas5,976,162,0005.535. Bahrain8,589,827,7757.836. Bangladesh49,389,772,35814.037. Barbados3,498,300,0009.238. Belarus21,397,284,82411.439. Belgium279,746,803,9606.740. Belize997,400,00014.341. Benin3,870,536,014Na42. Bhutan612,218,86414.043. Bolivia7,858,227,87016.644. Bosnia and Herzegovina12,908,699,2709.

6 The effects of the increment and decrement of the interest rate on consumption expenditure is notable in cases of Angola and Algeria. Angola has 67.7 % interest rate against Angola which has 8% interest rate thus Angola has expenditure of 16,610,257,666 dollars and Algeria has a high of 46,657,966,516 dollars. High interest rates inhibit expenditure as exhibited from table above. The data on proxy for disposable income indicates that increase on concurrently increases the amount of consumer expenditure as exhibited in Bhutan which has a high of 125 US million real GDP (proxy for disposable income) dollars and corresponding consumption expenditure 612,218,864.

With reference to the provided data in the scatter graph it is highly fundamental to show all the determinants have influence on the expenditure. Increase in real GDP causes increase in consumer expenditure while increase in the interest rates reduces the expenditure. The data fits the theory as indicated.Referencesdatabank.worldbank.org/data/home.aspx

CHECK THESE SAMPLES OF The Consumption Function

Different levels of income and expenditure

In the paper “Different levels of income and expenditure” the author examines the taxability of income of a person, which depends on the chargeability of the following heads of income: Income from salaries (sections 15 to 17) and Income from house property (sections 22 to 27).... hellip; The author states that the basis of taxation on income from salary is on due basis....

9 Pages (2250 words) Essay

The Autonomous Value of Savings and the Marginal Propensity

This section discusses The Consumption Function of a closed economy, a closed economy is the consideration of an economies income or output in the absence of imports and exports, and Keynes stated the open economy income or output function as follows: Y = C + I + G + (X –M)… According to Keynes consumption is a function of income, this function depicts that as the level of income increases then the level of consumption also increases, in cases where the income declines then consumption declines, for this reason, therefore, consumption is a function of income where Keynes specified the model as follows: C = F(Y) The marginal propensity to consume is the slope of the above curve, the marginal propensity to consume value determines how the consumption of a consumer responds to a change in income, the value of the marginal propensity to consume is greater than zero but less than 1, this means that when income increases all the increase is not used for consumption purposes but saved or invested in other income-generating projects, that is why the marginal propensity to consume is greater than 0 but less than 1....

4 Pages (1000 words) Research Paper

The Simple Keynesian Model and Its Policy Implications

If ‘Y' stands for total output, that is, the GDP and ‘E' equals the aggregate demand, then equilibrium condition requires: The aggregate demand or the desired expenditures on output is a summation of household consumption or ‘C', desired business investment demand or ‘I', and government expenditure or ‘G' (government expenditure is nothing but the government sector's demand for goods and services)....

5 Pages (1250 words) Essay

Analysis of Marketings Role Is to Encourage Consumption Statement

Similarly, this was a precedent that was followed even in the yesteryears, for instance, 1969 when marketing was thought of as being an important instigator within the consumption avenues.... The statement of marketing being a significant factor within the encouragement of consumption is true even to this day.... The paper takes a deep look at the way marketing has been seen as an enabling agent with regards to consumption and the eventual sale which in essence has been the case since 1969....

8 Pages (2000 words) Term Paper

Personal savings and insurance

Lack of fullness of insurance market causes consumers to delay their consumption and instead save during the current period.... Furthermore, consumers are motivated by the fact that, when they have savings, they will not borrow from anybody or ask help from anybody each time they want money for consumption or investment....

5 Pages (1250 words) Essay

How Complicated Does the Model Have to Be

It started with the Keynesian consumption function which perceived consumption simply as a function of the disposable income but consequently this function encountered some experiential inconsistencies (Krugman, 2000, p.... The relationship between the price level that has been measured by the gross domestic product price index and… the quantity of the real gross domestic product that is demanded is inverse or negative which means that when the levels of the prices experience a rise, then the amount of real gross domestic product that is demanded decreases and when the price levels go down, then the real While there has been a substantial quantity of theorizing and empirical work over the constituents of the aggregate demand, consumption spending has definitely been the core of or related research and debate and the history of the debate is as familiar as that of the aggregate supply wars....

7 Pages (1750 words) Essay

Assessment of Historical Growth in the US Economy

"Assessment of Historical Growth in the US Economy" paper identifies whether the USA is enjoying the longest continuous expansion of its economy since modern records began the best solution is to retrieve the GDP figures of the US economy over a period up to which the records are available.... hellip; In order to maintain the equilibrium position, it is necessary that the imports and exports of the country are at the same level....

6 Pages (1500 words) Coursework

The Reduction of Consumption Function in Economy

ecreasing The Consumption Function is one, but there is another function that is affected by this financial crisis; the investment function of the economy is also affected.... While a function of the consumption side of the economy remains reliant on credit for purchases, this financial crisis definitely has some effects as apparent in our multiplier model.... shows a multiplier model, where the national output is a function of the consumption, investments, government spending, and net exports in an economy....

8 Pages (2000 words) Term Paper