Essays on Housing Market in the USA, Marginal Propensity to Consume Assignment

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The paper "Housing Market in the USA, Marginal Propensity to Consume" is an outstanding example of a micro and macroeconomic assignment. The rise in consumer confidence in Australia comes as a result of high prospects in the labor, housing, and stock market. This is in terms of reports that unemployment had reduced making households optimistic about the number of available opportunities. Furthermore, the capital market has also been on an upward trend with the share prices increasing significantly. This was also the case in the housing market which has experienced clearance in previous auctions.

Other factors include a strengthening Australian dollar, low interest rates, decreasing inflation, and low petrol prices. These factors contribute to the prevailing trend in consumer confidence since consumers are assured of a vibrant economy. They projected an increase in future cash flows and will not have to hold on to their disposable income. When an economy displays such signs, consumers tend to increase expenditure to take advantage of the attractive opportunities in the market. For instance, households could choose to purchase houses when the interest rates are low.

The low petrol prices also result in decreased production costs in the industry and consequently the marginal prices of products. The previous recession and financial crisis which became exaggerated by ripples from the housing market in the USA. Just like in this case, the high prospects in the mentioned sectors will cause consumers to have confidence in other sectors and consequently the economy. Households and consumers strive to be rational and this is what will cause the confidence levels to increase. They make arrangements to make use of the attractive opportunities prevailing in the market. Question 1b The aggregate expenditure model states that consumption is the function of household consumption, consumer investments, exports, and government expenditure.

Also, it categorizes household consumption into autonomous consumption the secondary consumption which varies with disposable income. Secondary household consumption is a function of the marginal propensity to consume (MPC) and marginal propensity to save (MPS).

References

Chen, A. and Groenewold, N., 2013, The national and regional effects of fiscal decentralisation in China, The Annals of Regional Science, 51(3), pp. 731-760.

Eddie C.M. Hui, Zheng, X. and Wen-Juan Zuo, 2012, Housing wealth, stock wealth and consumption expenditure: a dynamic analysis for Hong Kong, Property Management, 30(5), pp. 435-448.

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