[Author’s Name]
[Institution’s Name]
Essay on An Instructive Look at Consumption and Inflation
Introduction
In economics, consumption is a measure of the desire of the consumer and hence the general public at large to spend and purchase goods and services that are available in the economy. A consumption function may be defined as a relationship between consumer expenditure and income. The average propensity to consume is related to the percentage of the disposal income, which is consumed and in the Keynesian view, both output and employment are related to the level of aggregate demand which is the sum of the consumer spending, the investment spending and the government expenditure on the domestic front. Increased consumption usually leads to inflation and this is being discussed in nearly every publication today (Andrew, 1998).
Enhanced consumption and hence inflation usually starts with attempts to increase property prices and rentals. As an example, in the United Kingdom, there was financial liberalization and increase in the prices of homes in the 1980s and house owners used the enhanced wealth that they had acquired to increase their spending as consumers. The state of the housing market and the influence that this can have on the consumer spending has been an important consideration in monetary policy on interest rates by many governments (Fielding, 1998).
In this article the effects of increased homeowner wealth as a result of the increase in the price of his asset in the market and its stimulation of increased consumption and hence inflation in the market are examined and analyzed.
There can be marked upturns and downturns in consumer confidence and in the past, as an example in the UK, during the 1970s and 1980s there were marked deviations from the usual trend with increased consumer confidence due to a perceived degree of stability and growth in the United Kingdom economy.......
