In the short-term Consumption can be greater than Income. Explain why the reason is more financial...
- In the short-term Consumption can be greater than Income. Explain why the reason is more financial than economic.
Homework Answers
It is true that in the short run, consumption can exceed income.
This is more of a financial aspect of consumption than economic.
This is because in the short run, income is fixed while consumption is variable. It can exceed income when people use up their savings or do dissavings to meet their consumption needs.
That is, for example in the short run when income is fixed at $1000,
Consumption can be $1100 where in $100 will be the savings used up from last times.
This explains the financial aspect of consumption spending,
Since Y = C + S
C will exceed Y only when S is negative, or there are dissavings
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