Describe about consumption function, Macroeconomics

Assignment Help:

Q. Describe about consumption function?

The consumption function

Consumption C(r) is assumed to be negatively related to the real interest rate r

Aggregate demand for consumer goods is stated as total amount of finished services and goods that households wish to buy under different conditions. There is not any specific supply of consumer goods - firms offer final goods however do not distinguish between supply to consumers, supply to investors and supply to foreigners. 

We have used the symbol C for observed consumption. To be consistent with the notation we must denote the demand for consumer goods by CD. Though this isn't common practice in macroeconomics. In its place symbol C is used for the demand for consumer goods as well. Luckily, it's almost always obvious from the context if symbol C represents the observed consumption - it's then a variable - and when C signifies the demand for consumer goods - it is then a function. 

Furthermore, the term 'demand for consumer goods' is frequently shortened to the 'demand for consumption' or simply 'consumption'. Whenever you see 'consumption', you need to figure out if it means observed consumption or consumption demand. 

In the classical model, demand for consumption is presumed to be negatively related to real interest rate r. higher real interest rates makes it more expensive to borrow money for consumption today. In the same way, it will be more favourable to postpone consumption to the future.  

Consumption is hence denoted by C(r) and this notation makes it clear that we are talking about demand for consumption and not observed consumption.


Related Discussions:- Describe about consumption function

Increase demand for diamonds and in supply of diamonds, Suppose there is a ...

Suppose there is a simultaneous increase in the demand for diamonds and increase in the supply of diamonds. Which of the following will occur as a result of these simultaneous even

Price elasticity of demand is computed for two products, if the price elast...

if the price elasticity of demand is computed for two products, and product A measures .79 , and product B measures 1.6 , then ? a. product A is more price elastic than product

Price - macroeconomy relationship, There are many other macroeconomic indic...

There are many other macroeconomic indicators which one might expect to be affected following an oil price hike. Perhaps more obviously affected than GNP is inflation. DePratto et

What is store of value - economic functions of money, Store of value - Econ...

Store of value - Economic functions of money If you are a fisherman and have a temporary surplus of fish that you want to store for the future, storing the fish might not b

AD, in the keynesian cross assume that the consumption function is given by...

in the keynesian cross assume that the consumption function is given by c=200+0.75(y-t). given planned investment is 100, government purchases and taxes are both 100. then what i

Quantitative data analysis and interpret , 1. To assess your ability to con...

1. To assess your ability to conduct quantitative data analysis and interpret the results of data analysis introduced inForecasting Trend. 2. To assess your ability to communicate

Oil revenue on agricultural productivity, please,how do i relate keynesian ...

please,how do i relate keynesian theories on fiscal policy to the topic"impact of oil revenue on agricultural productivity?

Help, Given the following data for StewieLand, a closed economy in 2012… r...

Given the following data for StewieLand, a closed economy in 2012… real gdp = $20,000 public savings = $1,000 consumption = $11,000 tax revenue collected = $4,000 Solve for

Forex, what is largest business in thailand

what is largest business in thailand

Cost reduction, Cost Reduction Positive measures to effect a lowering o...

Cost Reduction Positive measures to effect a lowering of costs include:  reducing national insurance contributions (an  ad valorem  tax on employing labor);

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd