Disposable income can be lower than consumption expenditure through borrowing or savings depletion.
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Economic glossaries and principles confirm that consumption expenditure can exceed disposable income when households borrow or draw down accumulated savings.
greater than disposable income. This spending may be financed by already accumulated savings, such as money in a savings account, or it can be borrowed
This glossary of economics is a list of definitions containing terms and concepts used in economics, its sub-disciplines, and related fields.
autonomous consumption
Also called exogenous consumption.
The consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes in income; generally, it may be required to fund necessities and debt obligations. If income levels are actually zero, this consumption counts as dissaving, because it is financed by borrowing or using up savings.
Autonomous consumption
Autonomous consumption (also exogenous consumption) is when people are paying for things when they have no income. In other words, it is the consumption expenditure that happens when income levels are zero. Such consumption is considered autonomous of income only when spending on these consumables does not change much income is changed; generally, it may be needed to pay for things that are needed and pay off debt. If income levels are actually zero, this consumption is called dissaving. This is because it is paid for by borrowing or using up savings. Autonomous consumption is different from induced consumption because it does not consistently change with income, whereas induced consumption does.[1] The two are related, for all households, through the consumption function:
where
- C = total consumption,
- c0 = autonomous consumption (c0 > 0),
- c1 = the marginal propensity to consume (the gradient of induced consumption) (0 < c1 < 1), and
- Yd = disposable income (income after government taxes, benefits, and transfer payments). Related pages
References
- ↑ Colander, David C. (2004). Macroeconomics (Fifth ed.). Boston, MA: McGraw-Hill/Irwin. pp.
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