![]() Whether a consumer is likely to have much savings when laid off will depend on the degree of patience reflected in the consumption function. On the other hand, laid-off consumers with substantial savings may be able to wait until they can find a better job match. For example, individuals with only a small stock of savings who are laid off from their jobs may be forced to take new jobs quickly, even if those jobs are a poor match for their skills. The 4% Rule: A Starting Point for Your Retirement Income StrategyĪt the microeconomic level the structure of the consumption function is of interest in itself, but it also has a powerful influence on many other kinds of economic behaviour. In the short run, the effectiveness of tax cuts or other income-boosting policies (such as those meant to stimulate a recessionary economy) will depend on what the consumption function says about how much the typical recipient spends or saves out of the extra income. ![]() In the long run, since income that is not consumed is saved, the responsiveness of households to any tax policy (such as those meant to spur aggregate saving and increase the capital stock) will depend on the structure of the consumption function and particularly what it says about how saving responds to interest rates. In principle, the consumption function provides answers to both short-run and long-run questions. Analysis of consumption expenditure is important for understanding short-term ( business cycle) fluctuations and for examining long-run issues such as the level of interest rates and the size of the capital stock (the amount of buildings, machinery, and other reproducible assets useful in producing goods and services). In macroeconomic models the consumption function tracks total aggregate consumption expenditures for simplicity it is assumed to depend on a basic subset of the factors economists believe are important at the household level. The characteristics of consumption functions are important for many questions in both macroeconomics and microeconomics. The consumption function is also influenced by the consumer’s preferences (e.g., patience, or the willingness to delay gratification), by the consumer’s attitude toward risk, and by whether the consumer wishes to leave a bequest ( see legacy). At the household or family level, these factors may include income, wealth, expectations about the level and riskiness of future income or wealth, interest rates, age, education, and family size. SpaceNext50 Britannica presents SpaceNext50, From the race to the Moon to space stewardship, we explore a wide range of subjects that feed our curiosity about space!Ĭonsumption function, in economics, the relationship between consumer spending and the various factors determining it.Learn about the major environmental problems facing our planet and what can be done about them! Saving Earth Britannica Presents Earth’s To-Do List for the 21st Century.Britannica Beyond We’ve created a new place where questions are at the center of learning.100 Women Britannica celebrates the centennial of the Nineteenth Amendment, highlighting suffragists and history-making politicians.COVID-19 Portal While this global health crisis continues to evolve, it can be useful to look to past pandemics to better understand how to respond today.Student Portal Britannica is the ultimate student resource for key school subjects like history, government, literature, and more.Demystified Videos In Demystified, Britannica has all the answers to your burning questions.This Time in History In these videos, find out what happened this month (or any month!) in history.#WTFact Videos In #WTFact Britannica shares some of the most bizarre facts we can find.Britannica Classics Check out these retro videos from Encyclopedia Britannica’s archives.Britannica Explains In these videos, Britannica explains a variety of topics and answers frequently asked questions.
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