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

The micro-finance institutions in india, Have the micro-finance institution...

Have the micro-finance institutions failed in their objectives?

Factors influence group members, Norms influence behavior conformity among ...

Norms influence behavior conformity among group members. What factors will influence group members to conform to a group's norms, and when will members remain independent? Do indiv

List of major emerging-market economies, List of major emerging-market econ...

List of major emerging-market economies To determine if the UK is to benefit from growth of emerging-market economies in the future, it should start exporting goods and specif

Probability that the student will pass, A student is taking two courses, Hi...

A student is taking two courses, History and Math. The probability that the student will pass the history course is .60, and the probability of passing the math class is .70. The p

Employment and inflation , With the aid of a diagram explain the Philip''s ...

With the aid of a diagram explain the Philip''s curve

Calculate the equilibrium level of income, The economy of Macroland has a b...

The economy of Macroland has a balanced budget with fixed government expenditures G = 150 and T = 150. Investment is autonomous: I = 200. The consumption function is the foll

Sears rates its salespersons, Sears rates its salespersons according to the...

Sears rates its salespersons according to their sales ability and their potential for advancement. They sampled 500 salespeople with following data: Potential for Advancement Fair

Explain function of AS-AD model, Q. Explain function of AS-AD model? Th...

Q. Explain function of AS-AD model? The function of AS-AD model is to extend IS-LM model so that we can analyze situations where Y > Y OPT . To achieve this, we should make P e

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