What are the determinants of consumption?

List of determinants of consumption expenditure [Explained]

• Disposable income. Disposable income is the most important determinant of consumption expenditure.
• Household wealth.
• Future income expectations.
• Inflation expectations.
• Interest rates and credit availability.

What are the determinant of aggregate savings and consumption expenditure?

The level of disposable income: The level of disposable income is the basic determinant of how much households will consume or save. All things being equal, an increase in disposable income will increase consumption expenditure/saving and vice versa. Total household indebtedness: Debts are paid with current income.

What is aggregate consumption?

First, aggregate consumption determines aggregate saving, because saving is defined as the portion of income that is not consumed. Because aggregate saving feeds through the financial system to create the national supply of capital, it follows that aggregate consumption…

How do you find aggregate consumption?

The equation for aggregate expenditure is: AE = C + I + G + NX. The aggregate expenditure equals the sum of the household consumption (C), investments (I), government spending (G), and net exports (NX).

What is the aggregate consumption?

What are the factors that affect the level of consumption?

Price level plays an important role in determining consumption. When the price falls, people will consume more, and propensity to consume of the society increases. Wages level plays an important role in determining consumption. When wages increases, people will consume more and vice-versa.

What are the determinants of consumption according to Keynes?

Determinants of Consumption Function: However, besides income, Keynes attached importance to other factors under the headings “objective” and “subjective” or “psychological” factors that determine aggregate consumption. Objective factors are also known as “economic factors” which are subject to change in the short run.

What is the relationship between wages and consumption?

Wages level plays an important role in determining consumption. When wages increases, people will consume more and vice-versa. The rate of interest plays an important role in determining the consumption function.

What is the role of fiscal policy in determining consumption?

Fiscal policy plays an important role in determining consumption. When the government reduces the tax, the propensity to consume of community increases. The progressive tax system increases the propensity to consume of the people by altering the income distribution.