Consumption expenditure - Coursework Example

CONSUMPTION EXPENDITURE Question The following data represents the out put of quarterly distribution (GDP) in the United Kingdom from 2008 to 2014 (Attanasio & Weber, 1994, p.56). The areas of consumption are manufacturing, production, construction and services within the United Kingdom Data Table Manufacturing Production Construction Services 2008 Q1 100 100 100 100 2008 Q2 98.6 99.2 98.9 100 2008 Q3 97.1 97.6 96.1 98.8 2008 Q4 92.7 93.4 90.4 97.3 2009 Q1 87.4 89.1 84.0 96.3 2009 Q2 87.8 89.4 82.9 96.0 2009 Q3 87.6 88.4 84.4 96.1 2009 Q4 89.0 89.3 83.4 96.3 2010 Q1 90.1 90.7 87.0 96.7 2010 Q2 91.7 91.7 91.3 97.4 2010 Q3 93.0 91.8 93.7 98.1 2010 Q4 93.8 92.8 91.1 98.1 2011 Q1 93.9 92.1 92.9 98.6 2011 Q2 94.2 91.0 93.3 99.1 2011 Q3 93.7 90.6 93.0 100.2 2011 Q4 93.4 90.2 91.7 100.4 2012 Q1 93.5 89.5 88.5 101.1 2012 Q2 92.4 88.7 85.4 101.2 2012 Q3 92.9 88.8 84.5 102.2 2012 Q4 91.6 87.1 84.7 102.0 2013 Q1 91.3 87.2 84.1 102.7 2013 Q2 91.7 87.8 86.2 103.2 2013 Q3 92.2 88.4 88.8 103.9 2013 Q4 92.7 88.7 89.1 104.5 2014 Q1 94.0 89.2 92.3 105.3 2014 Q2 94.6 89.4 93.5 106.4 2014 Q3 94.9 89.5 95.1 107.1 2014 Q4 95.1 89.7 93.0 108.1 Question 2 The following is the Scatter Diagram of the output of distribution Question 3 The following table represents the best line of fit of the scatter diagram. Question 4 The diagrams above indicate the GDP path and its headline industries that relates to the output level attained in quarterly manner (three months). In the decade preceding the downturn, the service industry had grown gradually, while the output production was flat within the same period (Stone, Rowe, Corlett, Hurstfield, & Potter, 1954, p.76). Construction developed sturdily in the initial part of the decade and while there was a momentary deterioration in mid-2000s, in 2007, this reversed. Industries have exhibited various inclinations after the last economic downturn. The production, manufacturing and construction industries were heavily affected by the decline of economic conditions. In contrast, the output of the service industry declined by four percent from its peak to trough (Symons, Proops & Gay, 1994, p.83). Production began to develop in 2010, and the construction and manufacturing industries exhibited a similar strength, and none of the industries showed a sustained growth. The output of production dropped in 2011 and 2012. In 2012, the output of construction dropped sharply. In 2014, the output of construction improved. However, the output dropped in the recent quarter. While there has been a prevalent development across the sections of GDP since the beginning of 2013, the service industry still remains to be the steadiest and the largest contributor to the economic development, and is the only headline industry, where the output has passed the levels of pre-downturn. The United Kingdom experienced a marginally slower standard compound growth of GDP in five years after the economic downturn; this is also the same for the service industry. In quarter four of 2014, only the production and service industry outperformed the post-downturn growth rates of the headline industry. Within the insurance, financial and service industries have exhibited certain strengths when compared to the 5-year average. The development in services has also been supported by the accommodation and service industries. Question 5 Consumption is the expense disposed on the services and goods. There are a number of determinants that affect the short-run consumption expenditure. Some of these determinants include disposable income, consumer confidence and the wealth effect. Disposable income- the tendency of spending The theory of spending states that consumers will always spend money depending on what they earn (their disposable income) (Jackson & Marks, 1999, p.43). Disposable income is the income got after the welfare benefits and the taxes have been considered. The most important thing is the rate at which the consumers spend when their income increases (marginal propensity of consumption). For instance is a consumer gets an extra income of $200 and spends $150, the marginal propensity of consumption would be $150/$200, which comes to 0.75. People who have lower incomes always have a higher propensity of spending. Consumer confidence The confidence of the consumer is always measured using surveys (Muellbauer, 1994, p.74). In the United Kingdom, the credit crunch occurred in 2008 and the recession in 2009; this dropped the consumer confidence. Therefore, it means that the consumers must be confident in purchasing a particular product. Wealth effect Wealth signifies the value of assets owned by an individual or group of people. For a number of people, the value of wealth they hold is in the form of shares, property or savings in a bank. Economists believe that the wealthier an individual they higher the chance of consumption. Reference: Attanasio, O. P., & Weber, G. (1994). Is consumption growth consistent with intertemporal optimization? Evidence from the consumer expenditure survey (No. w4795). National Bureau of Economic Research. Jackson, T., & Marks, N. (1999). Consumption, sustainable welfare and human needs—with reference to UK expenditure patterns between 1954 and 1994. Ecological Economics, 28(3), 421-441. Muellbauer, J. (1994). The assessment: consumer expenditure. Oxford Review of Economic Policy, 1-41. Symons, E., Proops, J., & Gay, P. (1994). Carbon taxes, consumer demand and carbon dioxide emissions: a simulation analysis for the UK. Fiscal Studies, 15(2), 19-43. Stone, R., Rowe, D. A., Corlett, W. J., Hurstfield, R., & Potter, M. (1954). The measurement of consumers expenditure and behaviour in the United Kingdom, 1920-1938 (Vol. 1). Cambridge: Cambridge University Press. Read More