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

Good to peanut butter, Bread is a related good to peanut butter: show on th...

Bread is a related good to peanut butter: show on the graph of the market for peanut butter, the impact on the price and quantity from an increase in the price of bread.

Economic theory helps society, Do you agee or disagree " Economic theory he...

Do you agee or disagree " Economic theory helps society reach economic goals that it has selected for itself?" Justify your answer.

What do you meant by investment, Q. What do you meant by Investment? Wh...

Q. What do you meant by Investment? When we use the word investment, we characteristically mean 'gross investment'. Fundamentally, gross investment comprises all finished goods

Assignment, derive the isoprofit functin

derive the isoprofit functin

Forex, what is largest business in thailand

what is largest business in thailand

Opportunity set, constructing a opportunity set and budget line for $15 lot...

constructing a opportunity set and budget line for $15 lottery ticket and intending on buying a candy bar for $0.75 and peanut bag for $1.50

Supply curve goes through the point, If a supply curve goes through the poi...

If a supply curve goes through the point P = $10 and Qs = 320, then a. $10 is the highest price that will induce firms to supply 320 units b. $10 is the lowest price that wil

Price of gasoline has recently come down, The price of gasoline has recentl...

The price of gasoline has recently come down as has the quantity. Show graphically and explain what might have caused this.

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