Date of Award

5-1-2015

Document Type

Thesis

Degree Name

Bachelor of Arts (BA)

Department

Economics

First Advisor

Dr. Bernice Scott

Abstract

The purpose of the research was to investigate consumption in the United States from 1952 to 2013. Consumer sentiment was the main explanatory variable, along with Real Gross Domestic Product, prime interest rate, unemployment rate, and recession. Consumption was measured in personal consumption expenditures. Consumer sentiment was measured with the University of Michigan Consumer Sentiment Index survey. The research used Ordinary Least Squares as the methodology of estimating the parameters in the regression. The results revealed that when consumer sentiment increased by one point, personal consumption expenditures decreased, suggesting some predictive abilities in the consumer sentiment measure. The consumer sentiment variable was negative and significant in all of the regressions completed. The Real Gross Domestic Product variable was positive and significant at all levels each of the regressions. Contrary to economic theory, the log of the unemployment rate variable was positive in the regressions run. However, it was remained insignificant in each regression. It was recommended that the government lower taxes when consumer sentiment is low to prevent impending consumption expenditure declines that could lead to recession. An implication of this fiscal policy was that it would increase disposable income, which could increase aggregate consumption. A negative implication of this policy was a potential overheating of the economy. Suggestions for further research were adding a race variable to investigate consumption patterns between races. Another suggestion for additional research is to split the time periods into two separate regressions: one examining consumption from 1952 to 1982 and a second regression from 1983 to 2013. The research concludes that consumption expenditures are a central component in the economy. Intervention, through fiscal or monetary policy, is needed to influence changes in consumption during periods of economic disequilibrium.

Creative Commons License

Creative Commons Attribution-Noncommercial 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License

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