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Unformatted text preview: 9 first consider consumption C (1) aprox = 2/3of aGDP’ 2) C is relatively stable and doesn’t falcate dramatically habits 3) C is “passive” i.e. C repoondes to GDP changes more than it causes GDP changes 4) Money for the consumer spending comes from I(i) after-tax income (ii) savings from earlier times (iii) barrowing *some people spend mor than their after-tax income -How?-They could barrow or they could spend money that they had saved earlier in life 10c depends on 1)after-tax income which in turn depend on factors such as a) Jobs b) Taxes c) Interest rates d) Government policies on transfer payments like social security, unemployment benefits e) Wages and salaries, commissions f) Hours worked e.g. overtime g) profits sharing, bonuses 2 Consumer confidence- psychology of the consumer- depends on unemployment, war, stock market, oil, prices, inflation, etc. 3 wealth effect e.g. stock market housing market...
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- Winter '08