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employment and income. Conversely, a decline in consumption leads to lower
production, unemployment, and economic slowdown.
Thus, consumption acts as an engine of economic growth, especially in demand-driven
economies.
3. Types of Consumption in Macroeconomics
Consumption can be classified into several types:
- Autonomous Consumption: Consumption that occurs even when income is zero. It
represents basic needs.
- Induced Consumption: Consumption that changes with income.
- Durable Goods Consumption: Spending on long-lasting goods (cars, appliances).
- Non-Durable Goods Consumption: Spending on goods consumed quickly (food,
clothing).
- Services Consumption: Spending on services such as education, healthcare, and
transportation.
4. Consumption in Measuring National Income
Under the expenditure approach, national income is calculated as:
Y = C + I + G + (X - M)
Where consumption (C) represents household spending. It is usually the largest share of
national income.
5. Determinants of Consumption
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