Consumption Spending

1. Wealth Effect:
Wealth = Assets -Liabilities

ex: Stock market is doing well
Wealth increases, even if no income, spending goes up, autonomous c increases

2. Real Balance Effect:
Prices decrease, value of s increases, s decreases, autonomous c increases.

3. Age of Durable goods:
Age of durable goods increases, autonomous c increases

4. Change in expectations

ex: expect to lose job=> autonomous c decreases
expect to get raise=> autonomous c increases


      • Income changes induced spending**