Answer to Question #242004 in Macroeconomics for vie

Question

Estimate your income, consumption, and saving for last year. If you dissaved (consumed more than your income), how did you fi nance your dissaving? Estimate the composition of your consumption in terms of each of the major categories listed in Table 21-1.

Answer 1

Solution:

The income earned by the people is either consumed or saved, although a bigger portion of it is consumed rather than saved. As income increases, consumption as well as savings increases, although an increase in income is more than an increase in consumption.

Dissaving refers to overspending beyond one’s available income. You can finance your dissaving by using past savings, taking cash or credit advances, and borrowing.

 

Income = Consumption + savings

Since you are dissaving, income will be equal to zero and savings negative.

My income, consumption and savings estimation for last year is as follows:

Income = $12,500

Consumption = $17,000

Saving = ($4,500)

 

The composition of consumption estimate in terms of each of the major categories listed in Table 21.1 is as per the below table: