Question

What is aggregate consumption?  How does it predict consumption smoothing which is in fact observed in the aggregate?  Does it hold in these components of consumption?

Answer 1

Aggregate consumption

It is the unutilised portion of the total savings of a person. That means portion of income which is not yet consumed by that person. Aggregate savings thus helps to produce capital supply nationwide.

As per the concept of aggregate saving, utility function is considered for assuming the preferences of the customer. It may include

• when consumption level rises, consumption needs emergency will reduce.
• Low risk in consumption.
• As a future unpredictability in income is there.
• A particular saving should be maintained.

Yes, defenitely aggregate savings is include in the above consumption functions as their is a saving along with the consumption spending.