CONSUMPTION THEORY (MACROECONOMICS)

CONSUMPTION THEORY (MACROECONOMICS)

By :

Armike Febtinugraini           1610631030049

ACCOUNTING – A8

ECONOMIC & BUSINESS FACULTY

SINGAPERBANGSA KARAWANG UNIVERSITY

2016

PREFACE

            Thankyou almighty God, who has given His bless to the writer for finishing this macroeconomics assignment. Thankyou for Mr. Irvan Yoga Pardistya, SE., MM., Ak who given the writer the lesson of Consumption Theory.Thankyou for my parents who given the writer strong support. Thankyou for my beloved Andra Wardhana Dhiaulhaq who help the writer to find out e-book about consumption theory.

                Hopefully we as a student in “State Singaperbangsa Karawang University” can work more professional by using English as the second language whatever we done. Thank you.

Armike Febtinugraini

NPM : 1610631030049

1. What is Consumption Theory?

      Consumption is a linear function of disposable personal income

           C = C + cY

           C = consumption expenditure

           Y = disposable income

           C = autonomous consumption (intercept of the line)

           c  = marginal propensity to consume (slope of the line)

source :
John M. Keynes: Absolute Income Hypothesis 1936

2.      2. Who are the actors?

a.      The private sector

Buyers and sellers of goods and services and resource owner are linked together in an economy and accross economies. For every rupiahs someone spends, someone else receives a rupiah as income.

i.                    Households

      A houeholds consist of one or more person who occupy a unit of housing. The unit of housing maybe a house, an apartment, or even a single room, as long as it constitutes separate living quarters. A households may consist of a single person, related family members, like a father, mother and children, or it may comprise unrelated individuals, like three college students sharing appartment. The person in whose name the house or appartment is owned or rented is called the households.

ii.                  Business Firms

A business firm is a business organization controlled by a single management. The terms company, enterprise, and business are used interchangeably with firm. Firms are organized as sole proprietorship, partnerships or corporation

iii.                The international sectors

Economic conditions in the US affect condition throughout the world, and conditions in other parts of the world have a significant effect on economic conditions in the US

b.      The public Sector

The public sector is usually composed of organizations that are owned and operated by the government. This includes federal, provincial, state, or municipal governments, depending on where you live. Privacy legislation usually calls organizations in the public sector a public body or a public authority.

Source :

William Boyes & Michael Melvin (Maroeconomics) 2016, page 66

3. Why is consumptions realted with income ?

       Suppose of two variables of interest are consumption and income. Suppose Roger A. Ronald collect the data in table 1. By simply looking in the first two column, we can see that as income rises (column 1), consumption rises (column 2). Suppose Roger A. Ronald want to show the relationship between income and consumption on a graph. It could place income on the horizontal axis, as in Exhibit1, and consumption on the vertical axis. Point A represents income of Rp. 0 and cnsumption of Rp. 60, point B represents income of Rp. 100 and consumption of Rp. 120 and so on. If we draw a straight line through the various points we have plotted, we have a picture of the relationship between income and consumption based on the collect of data.

Notice that our line in exhibit 1 slops upward from left to right. Thus as income rises, so does consumption . when two variables such as consumption and income change in the same way, they are said to be directly related.

Source : Roger A.Arnold (Microeconomics) 2010, page 19

4. How can Income is major factors for consumptions ?

       Consumption conducted households have a direct relationship with their income

References :

     Boyes, William & Michael Melvin. (Maroeconomics). Arizona State University. 2016

     Arnold, Roger. (Microeconomics). California States University. 2010

     John M. Keynes: Absolute Income Hypothesis 1936