Questions tagged [consumption]

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Some basic Consumption CAPM questions

Say we are in a world described by the consumption CAPM. All investors in this world have quadratic utility. Also, assume that consumption is as follows: $$c_{t+1} = (1+m_t)c_t + s_t c_t e_t $$ where ...
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1answer
46 views

IS curve, interest rate and consumption

It is possible for the interest rate to affect the expenditure with consumption. An increase in the interest rate could, in principle, lead to increases in savings and, that way, to a decrease in ...
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What is the no ponzi condition for this representative consumer problem? Tags: Initial condition, no-ponzi game

This question is following Farhi et.al. 2014's consumer budget constraint modified to add a government bond and removing money. A simplified version is given below which is pertinent to the question. $...
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1answer
56 views

Is $(\mathbb{R}^m)^n$ the real coordinate space of dimension $m\cdot n$?

Very simple question here: say that there are n individuals and each individual $i\leq n$ has a consumption bundle $x_i\in \mathbb{R}^m$ (i.e. there are $m$ types of goods). Suppose that social ...
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What's the conclusion of PIH and LCH?

Both the Life Cycle Hypothesis and Permanent Income Hypothesis concludes the same that permanent income, not the current income, is the primary determinant of consumption. If that is true, then how ...
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How can you interpret one of the parameters of optimal consumption at the Merton portfolio problem?

Statement: Let the dynamics of wealth of the agent satisfy $$dX_{t} = \pi_tX_t\Big(\mu dt+\sigma dB_{t}\Big)- c_t X_t dt, \qquad \textrm{with}\quad X_0=x_0 \in \mathbb{R},$$ where $(\pi,c)$ is an ...
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1answer
44 views

Why doesn't Nintendo fire up the old factories and re-produce *exact* copies of many of their most popular games, controllers and consoles?

Let's suppose that Nintendo announce tomorrow that they are going to create exact re-releases of the American and European NES, SNES and Nintendo 64 consoles, exactly the same as when they were ...
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Estimating $dL/dw$ with direct dependencies using total differential

I have $U(C,L) = U(C) - v(L)$ where $C$ is consumption and $L$ is labor supply. From my first order conditions, $C$ is a function of $w$, wage, and $L$. $L$ is a function of $w$ and $C$. Leisure is $N ...
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1answer
587 views

Does salary contribute to GDP under the expenditure approach?

The question really confuses me. On one hand, we can consider the wages as purchasing services from employees. On the other hand, the salary is also part of the cost of the products, thus it isn't &...
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7answers
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Why do low-income earners tend to spend more?

I am reading an article in the Economist. It is discussing the China's unbalanced economy especially the lower household consumption proportion in GDP than the global average. The writer thinks the ...
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3answers
554 views

What would be the economic effect of widespread instances of individuals paying off consumer debt?

In light of the economic impact of the recent shutdowns in response to COVID-19, the Australian Government is considering bringing forward planned tax cuts, that were do to be implemented gradually ...
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3answers
111 views

Relation between demands of $x, y$ and $z$

Question: Consider a consumer with utility function $U(x,y,z)=y\min\{x,z\}$. The prices of all three goods are the same. The consumer has $100 to spend on these three goods.The demands will be such ...
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1answer
22 views

Does anybody knows where I should look for a proxy for consumption to estimate a two factor C-CAPM?

Has anybody seen, any textbook recommendation that refers to the proper proxy for consumption. I am trying to estimate a two factor consumption CAPM, namely we I add a second factor apart from ...
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1answer
66 views

How does the GDP multiplier work?

When we learn about the GDP multiplier, it is portrayed as 1/MPS, because savings are supposedly a leak out of consumer spending. However, what I don't understand is aren't those savings spent anyways ...
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44 views

Why Does Deficit Spending Work Without a Liquidity Trap?

My understanding is that in a functioning economy, the financial market clears when the nominal interest rate is above zero. It is only when it reaches zero that a liquidity trap occurs and the ...
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1answer
37 views

Why does the aggregate consumer spending decrease due to to lower expected future disposable income instead of MPC?

This illustration is from Krugman's macroeconomics textbook, it's supposed to illustrate following situation (assuming that it happened for many people): Conversely, suppose you have a good job but ...
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1answer
33 views

Does the investment component of GDP (demand side) identity include expenditures by the government and households?

In the identity GDP=C+I+G+(X-M) does "I" include expenditures by the government and households? For example, if a construction firm builds new residential properties and a household buys this ...
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2answers
65 views

Marginal rate of substitution notation:

I am having a dumb doubt in writing some slides for an undergraduate class. I want to be consistent with the use in microeconomics but this easy thing is really bugging me: Mas-colell pag. 54 $ ...
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1answer
157 views

MPC and MPS relationship

I have a question from an old assignment that I cant wrap my head around. ...
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44 views

On Demand Functions and Engel Curves

A consumer has utility function $U(x,y)=(x−2)y$, where $x≥2$ and $y≥0$. The price of $x$ is $P_x$, the price of $y$ is $P_y$ and the consumer's income is $I>2P_x$. ($x$ and $y$ do not have to be ...
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1answer
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GDP(Expenditure view of GDP): /Why aren't investments categorized as non-final goods?

My understanding is that consumption = consumption of final goods = whatever consumers buy from companies (with an adjustment for export-import-process + maybe housing is slightly different (not ...
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1answer
39 views

Is Buy Nothing Day a classist protest of Black Friday?

I hope this isn't off topic, it seems specifically economic to me even though it probably intersects with other fields of study. Black Friday is seen as an iconic hallmark of consumerism, and Buy ...
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What is Economic Interpretation of three nonlinear equations?

I have the following nonlinear system $w$ is wealth $c$ is consumption $r(w)$ is gross return on wealth $a,b, d$ are parameters which are strictly positive and fixed. $$\dot{w} =r(w)w-c$$ $$\...
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1answer
420 views

Why salaries counted under Government expenditure in GDP

In the expenditure approach of GDP calculation, why are government employee's salary counted under Government approach while for private firms, we don't count salaries. I am unable to understand if ...
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How to prove that the walrasian demand function $x(p,w)$ is continuous in $p$ and $w$?

If the utility function $u$ is continuous and satisfies local nonsatiation, and walrasian demand function $x(p, w)$ is a function (i.e. always map to only single values), how to prove that $x(p,w)$ is ...
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1answer
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Why does strictly Walrasian demand with quasi-concave utility function mean that the walrasian demand having only one single consumption bundle?

In the context of Walrasian demand: Suppose u is continuous, satisfies local nonsatiation, and is strictly quasi-concave, each $w(p, x)$ contains a single consumption bundle. The proof I got from a ...
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257 views

Interpretation of coefficients in ECM for consumption

Say that we are regressing consumption $C_t$ on time $Y_t$. Furthermore, suppose that both series are $I(1)$ and are co-integrated. Given this, we set up the error correction model (ECM) as follows: $...
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Numerical Solution Using Excel about optimal consumption of households

I'm not sure how to solve this problem. I'm given the discount factor, interest rate, probability of high income shock, and various income shock sizes that I need to use to compute optimal consumption....
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1answer
254 views

Good source for marginal propensity to consume by country?

Is there a good data source that aggregates the MPCs of various countries? Thanks.
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1answer
99 views

Does higher tax on luxury goods does more harm than benefit?

I was studying Fiscal policy and I came across measures to reduce income inequality by using fiscal tools. One of the tool mentioned in that was - Higher taxes on luxury goods This makes sense that ...
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Relationship b/w consumption & increase in interest rate

Please help me clarify this- Case 1 - If interest rates increase then people will save more to reap the benefits and will cut down on their consumption(C) so Consumption will fall. Case 2 - Due to ...
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1answer
92 views

Why do the income and substitution effects cancel for log preferences? Trouble reconciling Slutsky decomposition

I've read (pg 10) in Gourinchas' notes on consumption that the income and substitution effects cancel for log preferences, and I tried to prove this to myself doing the Slutsky decomposition for the ...
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What is the trade-off between? Consumption and Leisure or Income and Leisure?

When first presenting the utility function and its arguments, textbooks typically start by stating that utility is a function of consumption and leisure. See for example https://sites.hks.harvard.edu/...
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Did real interest rates decrease during the Great Recession

Assuming the stock market/housing market crash decreased consumer wealth, decreased business confidence, and decreased expected appreciation rates on houses (thus increasing perceived user cost of ...
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Autonomous spending

"The term $\left(c_{0}+IQ+G-c_{1}T\right)$ is that part of the demand for goods that does not depend on output here ($c_{1}$ is mpc)." Can someone please explain how will you interpret government ...
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lifetime consumption explained

The formula for today's consumption is defined as: $$C = Y - T -S^P $$ That being said the consumption of tomorrow is: $$C' = Y' - T' + S^P(1+r)$$ Could anyone possibly explain to me why the ...
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2answers
127 views

Market baskets: cross-border comparisons

The concept of a market or consumer basket is quite intuitive. I assume a market basket for a given country tells for which goods an average person spends how much of her money. To be able to compare ...
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1answer
22 views

Physical goods in a typical household

Estimating how much of physical goods a somehow typical person or household owns today (say in the Western world, compared to former times) is not so easy I guess, but there is one single number that ...
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1answer
320 views

Intermediate demand vs. Intermediate consumption

I am trying to understand what's the difference between intermediate consumption and intermediate demand. The context is the European System of Accounts, which says that intermediate demand is the ...
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489 views

Keynesian-cross analysis [closed]

I have a question from my textbook which is: Using the Keynesian-cross analysis, assume that the consumption function is given by C = 100 + 0.6(Y – T). If planned investment is 100 and T is 100, then ...
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1answer
132 views

Why consumption is defined as $ C_t:= \left(\int^1_0C_t(i)^{\frac{\epsilon-1}{\epsilon}}di\right)^{\frac{\epsilon}{\epsilon-1}} $

I am reading Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications by Gali. In section 3.1 he presents/defines the consumption as $$ ...
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2answers
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How is the Euler Equation for Consumption derived from from intertemporal budget constraint and lifetime utility function in basic macroeconomics

I suspect that what I'm actually asking here is just a basic calculus question, which I have overwrought, but I wanted to ask it here to make sure before taking it to SEMaths. In the Jones ...
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1answer
688 views

Question about Locally non-satiated preferences

If a consumer has locally non-satiated preferences, which of these 2 bundles is preferred and why? Bundle A: (1,3) Bundle B: (4,2) This is what I've reasoned from my very limited understanding of ...
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1answer
98 views

Optimal choice for a weird leontief function

Compute the optimal choice for a consumer with the following utility function: $$u(x_1, x_2) =\max \{\min(2x_1, x_2), \min(x_1, 2x_2)\}$$ I'm familiar with computing optimal choice for perfect ...
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1answer
240 views

How Do Imports Affect GDP

Lets say the U.S. imports a brand new Ferrari that costs $600,000. I know that it would take away from the U.S. GDP since it's considered an import. However, if a consumer buys that Ferrari from the U....
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1answer
122 views

Consumption smoothing in RBC Model

I have the following inter temporal utility function: $U(t)=(\frac{s(t)}{1-\sigma})(c_t/c_{t-1}^\gamma)^{(1-\sigma)} - \chi*h(t)$ where $h(t)$ is the hours worked. I know that gamma is responsible ...
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2answers
130 views

Can Autonomous Consumption be Greater than Income of individual?

Autonomous consumption is done either through past savings or by borrowing money or selling asset to have minimum consumption in order to survive. So can autonomous consumption be greater than our ...
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1answer
168 views

Why CPI differs so much from consumption deflator?

Why are the two series so different for the US? Data is here: https://fred.stlouisfed.org/graph/?g=lqVJ and photo added below: Private consumption in GDP should include all items consumer by ...
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1answer
152 views

Does Household final consumption Expenditure include Consumption expenditure of Imported Goods

From World Bank, I got the Household final consumption Expenditure for many countries across time. I wonder if this consumption includes Consumption expenditure of Imported Goods / Import Volume? If ...
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1answer
239 views

Why does capital initially reduce and then rise with an anticipated future decrease in taxes in the RCK model?

Consider the version of the RCK model where there is a government that runs a constant balanced budget. At $t_0$, the economy is in steady state, with constant tax $T_{old} > 0$ Then, at $...