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

Cost to heat our homes and businesses, Use the laws of supply and demand to...

Use the laws of supply and demand to explain why the cost to heat our homes and businesses goes up in the winter time. Be sure to explain your answer fully. At least two paragraphs

State the term national income statistics, State the term National income s...

State the term National income statistics National income statistics underestimate the true level of economic activity, and as people's living standards, because the non-moneti

Example of inventory investment- accounting system, ACCOUNTING SYSTEM-EXAMP...

ACCOUNTING SYSTEM-EXAMPLE IV  Now consider the economy as in example III. In the next year same outputs were produced and the same incomes were paid out. However, the household

Labor supply and labor demand in the keynesian model, Supply of labor, L S ...

Supply of labor, L S (W/P), depends positively on real wages in classical model. It isn't always clear which individuals are included in the labor supply. Labor supply may consist

Financial and real investment, Financial and Real Investment Financial ...

Financial and Real Investment Financial investment simply means transfer of right from one party to another. While one party has made investment, the other has made disinvestme

How to calculate the total income of the economy, Consider an economy that ...

Consider an economy that having only of those who bake bread and those who make its ingredients. Assume that this economy's production is as follows: 1 million loaves of bread

Assignment #1, Explain the meaning of a production possibilities curve

Explain the meaning of a production possibilities curve

Monetary policy, what is the importance of credit multiplier

what is the importance of credit multiplier

Product information to consumers, Should the government increase, decrease ...

Should the government increase, decrease or remain the same in its level of intervention when it comes to mandating that companies provide product information to consumers? What ha

Taxation, with reference to incidence of taxation, explain with the help of...

with reference to incidence of taxation, explain with the help of a diagrams, who bears the incidence of taxation when the demand for a commodity is (i)perfectly inelastic (ii) uni

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