Question

Question 3 (12) 3.1. Explain the meaning of "real consumption (C)". (3) 3.2. List the factors on which real consumption depends in the economy. 3.3. Identify the relationship between consumption expenditure and each of the factors below: 3.3.1. Taxes 3.3.2. Wealth 3.3.3. Average price levels

Answer 1

Answer 3.1

Real consumption refers to actual spending on goods and services term ' real ' discribe the consumption how effected by due to inflation. Real consumption calculated by ( disposable income multiply by Marginal propensity to consume ) + autonomous consumption.

Answer 3.2

There are so many factor which effect the real consumption

Income of consumer, wealth of the consumer, age, education, size of the family, consumers spending behaviour, consumer taste and willingness to pay for good and services, etc.

Answer 3.3

Taxes: Taxes and consumpton expenditure have negative relation because if taxes is higher then it will reduce the disposable income which leads dicline in consumption expenditure and lower taxes leads increase in expenditure.

Wealth: Wealth and consumption expenditure have positive relation if wealth is higher then consumption expenditure is also higher and lower wealth leads lower consumption.

Average price level : Price level and consumption expenditure have negative relationship because higher price level lower demand of good which leads lower expenditure and lower price level higher demand of goods and services which leads more consumption expenditure.