Consumer spending is the largest component of expenditure on GDP in South Africa. This makes it a key component of the demand for goods and services in the economy and it is therefore worth studying in more detail.? Households are responsible for consumer spending in the economy and a change in their spending behaviour, even a small one, will result in a change in the demand for goods, output and income. Keynes (1936:96) had the following to say about the behaviour of households: The fundamental psychological law, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed to increase their consumption as income increases, but not as much as the increase in income. Consumer spending by households is determined mainly by their current income (Y). In other words, consumption is a function of income (C = f(Y)) and a positive relationship exists between income and consumption.
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