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Analyse the causes and consequences of the rise in the share of household consumption from 0.61% of GDP in 1996 to 0.65% in 2000.
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Analyse the causes and consequences of the rise in the share of household consumption from 0.61% of GDP in 1996 to 0.65% in 2000. The Keynesian theory of Consumption is that in short run, the current levels of real disposable income are the principal determinant of consumption. Real disposable income is one's income deducting both taxes and benefits and taking into account inflation. An increase in people's real disposable incomes increases their purchasing power and gives them greater financial resources to spend or save. Due the marginal propensity to consume in the UK being fairly high, a small rise in incomes results in a significant rise to consumption. For example, taking the mpc as 0.75, a £1,000 raise at work would mean that the employee spends £750 of this on goods and services. Furthermore, considering that on the whole, people on lower incomes tend to have a higher marginal propensity...
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