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The Consumption Function - Research Paper Example

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In contrary, the vital components that explain the consumption expenditure are majorly wealth, disposable income , expected in…
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The Consumption Function
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The Consumption Function According to UN data, most countries have considered consumption expenditure as the most tangible element of the gross domestic product (GDP). In contrary, the vital components that explain the consumption expenditure are majorly wealth, disposable income , expected in future income the price level and the underlying interest rates.
Country
consumption expenditure
real GDP (proxy for disposable income)
in (US. million dollars)
GDP deflator (proxy for price level)
in (US. million dollars)
lending interest rate
in (US. million dollars)
1.
Afghanistan
8,063,703,591
150
10.9
Na
2.
Albania
8,414,732,177
124
3.5
13.1
3.
Algeria
46,657,966,516
77
16.1
8.0
4.
Angola
16,610,257,666
68
26.8
67.7
5.
Antigua and Barbuda
845,962,815
114
4.3
11.4
6.
Argentina
133,117,224,547
94
8.8
6.2
7.
Armenia
4,114,120,693
114
3.2
18.0
8.
Aruba
1,767,184,358
109
4.2
11.5
9.
Australia
521,456,923,771
103
3.7
9.1
10.
Austria
223,568,537,034
96
2.0
Na
11.
Azerbaijan
6,414,194,531
90
16.1
17.0
12.
Bahamas
5,976,162,000
103
5.1
5.5
13.
Bahrain
8,589,827,775
81
13.7
7.8
14.
Bangladesh
49,389,772,358
106
5.1
14.0
15.
Barbados
3,498,300,000
108
6.6
9.2
16.
Belarus
21,397,284,824
99
18.9
11.4
17.
Belgium
279,746,803,960
96
2.4
6.7
18.
Belize
997,400,000
108
2.3
14.3
19.
Benin
3,870,536,014
107
4.4
Na
20.
Bhutan
612,218,864
125
5.9
14.0
21.
Bolivia
7,858,227,870
97
16.6
22.
Bosnia and Herzegovina
12,908,699,270
140
9.6
Country
consumption expenditure
lending interest rate
in (US. million dollars)
23.
Afghanistan
8,063,703,591
Na
24.
Albania
8,414,732,177
13.1
25.
Algeria
46,657,966,516
8.0
26.
Angola
16,610,257,666
67.7
27.
Antigua and Barbuda
845,962,815
11.4
28.
Argentina
133,117,224,547
6.2
29.
Armenia
4,114,120,693
18.0
30.
Aruba
1,767,184,358
11.5
31.
Australia
521,456,923,771
9.1
32.
Austria
223,568,537,034
Na
33.
Azerbaijan
6,414,194,531
17.0
34.
Bahamas
5,976,162,000
5.5
35.
Bahrain
8,589,827,775
7.8
36.
Bangladesh
49,389,772,358
14.0
37.
Barbados
3,498,300,000
9.2
38.
Belarus
21,397,284,824
11.4
39.
Belgium
279,746,803,960
6.7
40.
Belize
997,400,000
14.3
41.
Benin
3,870,536,014
Na
42.
Bhutan
612,218,864
14.0
43.
Bolivia
7,858,227,870
16.6
44.
Bosnia and Herzegovina
12,908,699,270
9.6
The effects of the increment and decrement of the interest rate on consumption expenditure is notable in cases of Angola and Algeria. Angola has 67.7 % interest rate against Angola which has 8% interest rate thus Angola has expenditure of 16,610,257,666 dollars and Algeria has a high of 46,657,966,516 dollars. High interest rates inhibit expenditure as exhibited from table above. The data on proxy for disposable income indicates that increase on concurrently increases the amount of consumer expenditure as exhibited in Bhutan which has a high of 125 US million real GDP (proxy for disposable income) dollars and corresponding consumption expenditure 612,218,864.
With reference to the provided data in the scatter graph it is highly fundamental to show all the determinants have influence on the expenditure. Increase in real GDP causes increase in consumer expenditure while increase in the interest rates reduces the expenditure. The data fits the theory as indicated.
References
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