consumption

(noun)

In the expenditure approach, the amount of goods and services purchased for consumption by individuals.

Related Terms

Examples of consumption in the following topics:

  • The consumption function

    • The function is used to calculate the amount of total consumption in an economy.
    • Autonomous consumption (otherwise known as exogenous consumption) is consumption expenditure that occurs when income levels are zero.
    • Induced consumption is consumption expenditure by households on goods and services that varies with income.
    • C represents total consumption, while c0 represents autonomous consumption.
    • Since autonomous consumption never varies regardless of income, the slope of the consumption function is defined entirely by the marginal propensity to consume.

  • The Importance of Aggregate Decisions about Consumption versus Saving and Investment

    • Money can either be consumed, invested, or saved (deferred consumption or investment).
    • For example, buying a movie ticket is spending money on consumption.
    • Savings is essentially deferred consumption or investment; it is intended for use in the future.
    • Aggregate demand met by the market is spending, be it on consumption, investment, or other categories.
    • Furthermore, since consumption and investment are components of GDP but saving is not, increased savings indirectly reduces GDP .

  • The budget constraint: balancing income, consumption, and saving across time

    • Fisher's model is also defined in part by the agent's time preference in relation to consumption.
    • According to this hypothesis, permanent consumption is proportional to permanent income.
    • Permanent consumption is a similar notion of consumption.
    • As a result is consumption is much higher than expected in the present, while saving is much lower.
    • Explain how agents make consumption and savings decisions subject to multiperiod budget constraints.

  • Correlation and Causation

    • ., ice cream consumption) the other variable also increases (e.g., crime).
    • Ice cream consumption is positively correlated with incidents of crime.
    • Ice cream consumption and crime increase during the summer months.
    • Thus, while these two variables are correlated, ice cream consumption does not cause crime or vice versa.
    • Thus, the correlation between ice cream consumption and crime is spurious.

  • Consumption outcomes

    • Marginal propensity to consume measures induced consumption; marginal propensity to save measures increased saving due to increased disposable income.
    • In economics, the marginal propensity to consume (MPC) is an metric that quantifies induced consumption, the concept that the increase in consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers).
    • The proportion of the disposable income that individuals desire to spend on consumption is known as the propensity to consume.
    • The easiest way to calculate MPC is to divide the increase in consumption by the increase in disposable income.
    • These two conclusions imply that the gap between income and consumption at all high levels of income is too wide to be easily filled by investment.

  • Impact of Income on Consumer Choices

    • One of the central considerations for a consumer's consumption choice is income or wage levels, and thus their budgetary constraints.
    • Complementary: Complementary goods are goods that are interdependent in consumption, or essentially goods that require simultaneous consumption by the consumer.
    • An example of this would be like purchasing an automobile and car insurance, the consumption of one requires the consumption of the other.
    • This graph demonstrates the inverse relationship between income and the consumption of inferior goods.
    • Break down changes in consumption into the income effect and the wealth effect

  • GDP Equation in Depth (C+I+G+X)

    • GDP is the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M): Y = C + I + G + (X - M).
    • GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M):
    • Consumption (C) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy.
    • Only expenditure based consumption is counted.
    • GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.

  • Defining GDP

    • GDP identified as "Y" in equation form, include Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).
    • "C" (consumption) is normally the largest GDP component in the economy, consisting of private expenditures (household final consumption expenditure) in the economy.
    • GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
    • Depreciation (or Capital Consumption Allowance) is added to get from net domestic product to gross domestic product.
    • Since wages eventually are used in consumption (C), the expenditure approach to calculating GDP focuses on the end consumption expenditure to avoid double counting.

  • Forces in Consumerism

    • The term is often associated with criticisms of consumption starting with Thorstein Veblen.
    • In economics, consumerism refers to economic policies that place emphasis on consumption.
    • Veblen's scathing proposal was that unnecessary consumption is a form of status display .
    • Access to credit, in the form of installment payments aided further consumption.
    • Conspicuous consumption is when goods are consumed to enhance one's social status.

  • The Effect of Restrictive Monetary Policy

    • As you may remember, aggregate demand is the sum of private consumption, investment, government spending and imports.
    • By decreasing the amount of money in the economy, the central bank discourages private consumption.
    • The higher interest rate also promotes saving, which further discourages private consumption.
    • The decrease in consumption and investment leads to a decrease in growth in aggregate demand.
    • Consumption and investment are discouraged, and market actors will choose to save instead of circulating their money in the economy.