Income, Outgo, and Investment
In This Chapter
• Sources of income
• Propensity to spend and to save
• The consumption function
• The multiplier effect
In Chapter 6, we examined consumers’ buying behavior based upon their individual wants and needs. In this chapter, we look at consumers on a larger scale as a driving force in the economy.
It’s well worth doing. Consumers’ choices about how much of their income to spend and to save strongly affect the growth of the economy and, over time, its size. That’s because, as you recall, the spending of households on goods and services accounts for at least two thirds of U.S. gross domestic product (GDP). Consumer spending boosts production of goods and services. Meanwhile, the savings ...