CONSUMPTION EXPENDITURE AND NATIONAL INCOME

Consumption Expenditure and National Income

Consumption Expenditure and National Income

Introduction

One of the determinants of national income is consumption expenditure. Any, economies, any households any individual's expenditure depend on the national income they have.

National Income, is an economic scale, which consists of all income received by all productive factors nationals for some years, net of all intermediate goods and services that have been used to produce them. It is a valuable tool to analyze the results of the economic process, which specifically measures the amount of goods and services that are arranged in the country for some years.

Further in order to explain the importance of consumption expenditure with respect to national income, it is essential to first explain what consumption expenditure is. (Hicks 1977: page 17-25)

Discussion

Consumption expenditure of households is the main economic activity of the population and is an approach to the concept of private consumption as the most important component of aggregate demand in a country.

It is defined as the action and effect of consumption, whether products, and other kinds of short-lived goods and services, such as energy, is consumed as a result of using these products and services to meet primary and secondary needs. The personal consumption expenditure is all that families buy (except houses, which are considered as an investment). It consists of non-perishable items (cars, appliances); perishable items (clothing, food) and services (haircuts, medical, travel). The convention is called those perishable items that are less than a year, including clothing. Spending on durable goods is the most stable component of personal consumption expenditures.

The level of national income helps in determining the consumption expenditure (Sibani 1985 : page 93). This can be explained through the consumption function. The higher the national income, the probability of consumption expenditure will increase as we. Thus, people with higher income tend to consume more than people with lower income.

Given a stable consumption function, the level of consumption can be explained, in a certain and predictable, the level of income. Regarding the consumption function, model assumes that consumption increases when income increases, but at a lower rate than it does this. This behavior occurs because, as income increases, individuals devote a greater portion of this savings.

Demand for consumer goods is not constant but increases with income: families with higher income consumed more than families with lower income. The consumption function describes the relationship between consumption and income: C = + PMC.YD

Consumption pattern in itself is linked to the unemployment rate, the circular flow activity whereby how individuals, household, organization and state all contribute towards how goods flow and are consume from the stage of utilizing the factors of production, to delivering it and the money made throughout the process. If a country does not spend, in terms their consumption expenditure falls, then it will have an impact on the national income of the country.

In modern societies, consumption is a crucial component of the permanency economic ...