Question

Which of the following is true about consumption?

1) Consumption refers to the use of goods and services by individuals and households.
2) Consumption is a key component of aggregate demand in an economy.
3) Consumption can be influenced by factors such as income, prices, and consumer confidence.
4) Consumption is not affected by changes in government policies or regulations.

Answer 1

Consumption includes spending on durable goods, nondurable goods, and services, and is primarily influenced by the amount of disposable income. It is a major part of aggregate demand, making up about two-thirds of GDP. Factors like income, consumer confidence, and government policies can influence consumption patterns.

Step-by-step explanation:

Consumption refers to the use of goods and services by individuals and households. It encompasses spending on durable goods, such as automobiles, which provide value over time, and nondurable goods, such as groceries which are consumed and then gone. Consumption also includes services, which are intangible things like healthcare or entertainment.

Keynes identified disposable income as a primary factor affecting consumption, with the understanding that people are likely to spend more when they have more income after taxes. Consumption is indeed a key component of aggregate demand in an economy, accounting for about two-thirds of the GDP in any given year. Lastly, consumption is influenced by various factors including income, prices, consumer confidence, and can also be significantly affected by government policies and regulations.