Go to the St. Louis Federal Reserve FRED database, and find data on Personal Consumption Expenditures (PCEC), Personal Consumption Expenditures: Durable Goods (PCDG), Personal Consumption Expenditures: Nondurable Goods (PCND), and Personal Consumption Expenditures: Services (PCESV).

a. Using the most recent data, what percentage of total household expenditures is devoted to the consumption of goods (both durable and nondurable goods)? What percentage is devoted to services?

b. Given these data, which specific component of household expenditures would be most impacted by a reduction in overall household spending? Explain.

Short Answer

Expert verified

a. 34.63% is devoted to goods and 65.37% is devoted to services.

b. Services would be the most affected.

Step by step solution

01

Step 1. Introduction

Goods are tangible items that satisfy human wants and needs and provide utility. Goods can be of two types durable and non durable. Durable goods are the ones that can be consumed for a long time such as machines. Non durable goods are those goods that are not durable and cannot be consumed for a long time, e.g. food, clothes.

Services are intangible items that satisfy needs nad provide utility. Personal consumption expenditure refers to the spending by hoseholds on goods and services.

02

Step 2. Explanation

(a)

The federal reserve data shows that personal consumption expenditure in 2021:Q4 was 16,335.45. The personal consumption expenditure on durable goods is 2,061.264. The personal consumption expenditure on non durable goods is 3,594.977. The personal consumption expenditure on services is 10,679.209.

Percentage of household expenditure spent on goods can be obtained as,

=2,061.264+3,594.97716,335.45×100=34.63%

Percentage of household expenditure on services can be obtained as,

=10,679.20916,335.45×100=65.37

(b)

The above data shows that a reduction in the overall household spending would affect household expenditure on services.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

If firms suddenly become more optimistic about the profitability of investment and planned investment spending rises by \(100 billion, while consumers become

more pessimistic and autonomous consumer spending falls by \)100 billion, what happens to aggregate output?

The fiscal stimulus package of 2009 caused the IS curve to shift to the left, since output decreased and unemployment increased after the policies were implemented.” Is this statement true, false, or uncertain? Explain your answer.

Go to http://www.eurmacro.unisg.ch/Tutor/islm.html. Set the policy instruments to G = 80, t = 0.20, c = 0.75, and b = 40. Now increase government spending, G, from 80 to 160. By how much does the IS curve shift horizontally to the right? Why is the amount of shift greater than the increase in G? Now increase the marginal propensity to consume, c, from 0.75 to 0.90. In which direction does the IS curve shift, and why? By how much does it shift? Now increase the tax rate, t, from 0.20 to 0.28. In which direction does the IS curve shift, and why? By how much does it shift?

“Since inventories can be costly to hold, firms’ planned inventory investment should be zero, and firms should acquire inventory only through unplanned inventory

accumulation.” Is this statement true, false, or uncertain? Explain your answer

Go to the St. Louis Federal Reserve FRED database, and find data on Real Private Domestic Investment (GPDIC1), a measure of the real interest rate; the 10-year Treasury Inflation-Indexed Security, TIIS (FII10); and the spread between Baa corporate bonds and the 10-year U.S. treasury (BAA10YM), a measure of financial frictions. For (FII10) and (BAA10YM), convert the frequency setting to “quarterly,” and download the data into a spreadsheet. For each quarter, add the (FII10) and (BAA10YM) series to create ri , the real interest rate for investments for that quarter. Then calculate the change in both investment and ri as the change in each variable from the previous quarter.

a. For the eight most recent quarters of data available, calculate the change in investment from the previous quarter, and then calculate the average change over the eight most recent quarters.

b. Assume there is a one-quarter lag between movements in ri and changes in investment; in other words, if ri changes in the current quarter, it will affect investment in the next quarter. For the eight most recent lagged quarters of data available, calculate the onequarter-lagged average change in ri .

c. Take the ratio of your answer from part (a) divided by your answer from part (b). What does this value represent? Briefly explain.

d. Repeat parts (a) through (c) for the period 2008:Q3 to 2009:Q2. How do financial frictions help explain the behavior of investment during the financial crisis? How do the coefficients on investment compare between the current period and the financial crisis period? Briefly explain.

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free