Consumption contributes tremendously to our nation’s GDP growth. In America, it is estimated that at least 60% of the GDP is tabulated from household consumption alone. Remember what we discussed in the Prelude to Macroeconomics? What we spend becomes somebody’s income! Therefore, the more we spend, the more we earn! That is why governments all over the world are working day and night to stimulate spending in their economies!
Have you ever wondered how your spending habits would change if you were extremely poor? I’m sure you would have very different spending habits as compared to your life now. But what are the things you buy that would be similar as compared to your rich lifestyle? I can think of a few:
When we add them all together, we call it AUTONOMOUS CONSUMPTION, which is consumption that is not dependable on income.
So let’s say we now have more disposable income. By the way, what’s disposable income? It’s the income that we are entitled to spend after paying off all our taxes. With disposable income, we now have the freedom to spend or save a certain proportion of it!
And how do different taxes affect our consumption and the economy? We will be exploring more into that after we finish covering all the components of how GDP is calculated.
At the end of this video, you should be able to:
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