Marginal URLs:
Issues and Applications—Web Resources:
Economics on the Net:
The Relationship Between Consumption and Real GDP
According to the basic consumption function we considered in this chapter, comsumption rises at a fixed rate when both disposable income and real GDP increase. Your task here is to evaluate how reasonable this assumption is and to determine the relative extent to which variations in consumption appear to be related to variations in real GDP.
Title: Gross Domestic Product and Components
Navigation: Use the link at http://research.stlouisfed.org/fred2/categories/18 to visit the Federal Reserve Bank of St. Louis's Web page
on Gross Domestic Product and Components.
Application:
- Scan down the alphabetical list, and click on Personal Consumption Expenditures (select the version marked Q and Bil. of $). Then click on "Download Data," Write down consumption expenditures for the past eight quarters. Now back up to Gross Domestic Product and Components, click on Gross Domestic Product, 1 Decimal (also marked Q and Bil. of $), click on "Download Data," and write down GDP for the past eight quarters. Use these data to calculate implied values for the marginal propensity to consume, assuming that taxes do not vary with income. Is there any problem with this assumption?
- Back up to Gross Domestic Product and Components. Now click on Gross Domestic Product: Implicit Price Deflator. Scan through the data since the mid-1960s. In what years did the largest variations in GDP take place? What component or components of GDP appear to have accounted for these large movements?
