Components of Consumer spending Essay

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Components of Consumer spending Gross Domestic Product (GDP) is the final value of all goods and services produced domestically in a year, minus any trade deficit. It can also be interpreted as the sum of the total spending of its component parts. There are several components of GDP, and those include Consumer Spending (C), commercial and residential Investment Spending, Government Spending, and Net Exports (value of all exports minus the value of all imports). The largest component of GDP is Consumer Spending, totaling about 6.255 trillion dollars in 1999, or sixty seven percent (67%) of GDP. Like GDP, Consumer Spending (here after C) is also determined by several component parts. C is the sum of consumer spending on Durable …show more content…
For example, a rational person will not buy more than one washing machine every six years or so, even if their relative income has increased, or if the price of washers decreases. Even if they were inclined to replace a durable good before its service life ended, most people would not consider owning more than one washing machine at a time, or having more than one car per driver. Another reason that DG spending (relative to GDP) does not seem to change is that there have been significant increases in the way that durable goods are manufactured. Advancements in technology and quality control procedures allow manufactures to produce higher quality goods with longer service lives, which consequently need less frequent replacement. Also global competition has forced American manufactures to produce higher quality goods at more competitive prices. Consumer spending on Non-Durable Goods (NDG), relative to GDP, has fallen sharply from 29.27% of GDP in 1959 to 19.91% of GDP in 1999. I’m not sure what caused this decrease, but I have some ideas. First, increases in manufacturing quality have improved the service life of most every product, from tennis shoes to light bulbs. Secondly, many low dollar items are no longer made domestically, in favor of foreign factories with lower operating costs, cheaper labor, and relaxed (if existent) environmental policies. Some of the components of NDG, like food spending, are relatively

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