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

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

As-ad model with inflation, Q. AS-AD model with inflation? When we have...

Q. AS-AD model with inflation? When we have inflation, both AD curve and AS curve will be gliding. 'The glide rate' of the AD curve is given by Π M whereas it is Π W that appli

Health care and income transfers, During the past five decades, there has b...

During the past five decades, there has been a shift in the composition of the federal budget toward more spending on income transfers and health care and a smaller share for natio

Relation among opportunity cost and production possibilities, How does Oppo...

How does Opportunity cost and production possibilities relate?

Gross domestic capital formation, Gross Domestic Capital Formation  Pro...

Gross Domestic Capital Formation  Production requires services of fixed assets such as machinery, equipment and structures as well as working capital i.e. stocks of raw materia

Value to change expect the market, You just inherited a house with a market...

You just inherited a house with a market value of $300,000, and do not expect the market value to change. Each year, you will pay $1,000 for utilities and $3,000 in taxes. You can

Retirement planning, For retirement planning, you decided to deposit $1,000...

For retirement planning, you decided to deposit $1,000 per month and increase your deposit by $100 per month. How much will you have at the end of 10 years if the bank pays 3% annu

International trade, what does international trade fails to its claims ?

what does international trade fails to its claims ?

To make economic profits in the long term, Jessica Alba, a famous actress, ...

Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choos

.Exam Question, If a country allows trade and, for a certain good, the dome...

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price. A) the country will be an exporter of the good. B) the country

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