Consumption

Consumption is the use of goods and services by households to satisfy wants and needs. In macroeconomics it denotes spending by households and is a central component of aggregate demand and gross domestic product. Spending is typically divided into durable goods (such as cars and appliances), nondurable goods (food, clothing), and services (health care, education, financial services).

Determinants of consumption include current income and wealth, expectations about future income, interest rates, prices, credit availability, taxes, and demographic factors. The marginal propensity to consume measures how spending responds to changes in income. Theoretical models include the Keynesian consumption function, which posits C = a + bY; the permanent income hypothesis, and the life-cycle hypothesis, each proposing different patterns of consumption over time.

Measurement and policy: In national accounts, personal consumption expenditures track household purchases of goods and services. Because consumption drives most fluctuations in GDP, policymakers use fiscal measures (tax changes, transfer payments) and monetary actions (credit conditions, interest rates) to stabilize it. Cross-country differences reflect income levels, credit access, and cultural factors that influence saving and spending behavior.

Other uses: In everyday language, consumption can refer to the use or depletion of resources, including energy or natural resources. In environmental and sustainability discourse, reducing or altering consumption patterns is a proposed strategy to lower ecological impact while maintaining well-being.