Questions tagged [consumption]

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1answer
20 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
33 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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0answers
42 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
21 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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2answers
93 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
85 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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1answer
75 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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1answer
23 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
34 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
61 views

MPC and MPS relationship

I have a question from an old assignment that I cant wrap my head around. ...
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0answers
29 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
25 views

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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2answers
171 views

Re-evaluation of Consumer Price Index (C.P.I.) weights

How are the weights of the various household items in the Consumer Price Index (C.P.I.) basket decided, i.e., how are they re-evaluated every year? Is it done manually or automatically? If its done ...
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1answer
34 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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0answers
80 views

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
95 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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0answers
112 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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0answers
49 views

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
47 views

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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0answers
17 views

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
47 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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1answer
37 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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0answers
16 views

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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0answers
54 views

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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1answer
29 views

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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0answers
26 views

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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0answers
22 views

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
80 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 ...
2
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1answer
21 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
180 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 $...
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1answer
221 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
272 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
52 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
112 views

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
65 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
167 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
68 views

What is the estimated propensity to consume out of wealth, and how does it depend on income levels?

What is the estimated propensity to consume out of wealth, and how does it depend on income levels? To make sure we are talking about the same thing: I am asking what estimates we have on what ...
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1answer
144 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
3k views

How does one calculate an optimal consumption bundle if the MRS only contains one variable?

For example, say the MRS has simplified to the form $MRS(x,y) = -y$, given a utility function \begin{equation*} U(x, y) = e^{(x + ln(y))^{1/3}} \end{equation*} With a budget line of, say, $2x + y = ...
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5answers
933 views

Piracy/File sharing - Why aren't songs, movies or books given for free?

Why aren't songs, movies or books given for free (+ads)? i. Every minute, people are pirating and there is no stopping that. If people see 0.99 for a song on iTunes and 0.00 for a song on a torrent ...
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1answer
98 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
18 views

if all income is spent on consumption how will it change or affect the economy [closed]

Imagine all incomes being spent on consumption would such a system be in a position of no change.
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1answer
38 views

Does lowering consumption help reduce inflation rates?

My country has a whopping 25% annual inflation rate. As far as I know, high inflation implies higher consumption rates, but I was hearing lately that consumption is actually lowering, while inflation ...
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0answers
58 views

What would happen if there was a one-time redistribution of wealth from the wealthiest 1% to the other 99% of people in the US? [closed]

If you think this is going to lead to answers which are too speculative, let me know, but I think it should be possible to at least make some strong educated guesses... What would happen if there was ...
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0answers
6k views

What's the difference between the Life Cycle Hypothesis and Permanent Income Hypothesis?

Would it be correct to say that the Permanent Income Hypothesis (PIH) stipulates that current consumption decisions are made based on future income projections/expectations, while the Life Cycle ...
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2answers
70 views

Is there an economically sound way to decide between buying media or a streaming subscription?

How can a consumer (like myself) decide on whether they should pay for a music streaming service based on economic reasoning? Assumptions: The budget allows paying for a € 10/Month music ...
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1answer
499 views

Log-linearisation Euler Consumption Equation

I am trying to log-linearize the Euler consumption equation in Gali's book. He says: A log-linear approximation of $Q_{t}= \beta E_{t}[(\frac{C_{t+1}}{C_{t}})^{-\sigma}(\frac{Z_{t+1}}{Z_{t}})(\frac{...
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1answer
48 views

How to prove that GDP grows at the same rate as consumption on Lab Equipment Model?

I'm studying the Lab Equipment Model (Barro-Sala-i-Martin, Chapter 6). I'm having trouble when trying to prove that every variables grows at the same rate as consumption. I was able to prove that $\...
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1answer
63 views

Why do we model that higher government involvement increases output?

I have just read about the "real intertemporal" model of a macroeconomy in Macroeconomics by Stephen Williamson. I am concerned about how it says any increase in government spending, even if it is ...
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1answer
103 views

Lifecycle Consumption Models and Dispersion in Consumption

Lifecycle models base on the assumption that households want to maximize their consumption and at the same time insure themselves against income shocks. However, there is a lot of (c.p.) consumption ...