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Personal Consumption Expenditures

Personal Consumption Expenditures (Consumption) is the largest component of demand. In 2010 it accounted for 70% of the GDP in the USA. It is defined as the sum of goods and services purchased by people residing in a certain country.

Imputed housing services are also included as a part of consumption. Homeowners are assumed to consume housing services, for a price equal to the imputed rental income of the house or in other words, what they would have to pay if they were renting the house.

If we dis-aggregate consumption, we observe three components: purchases of durable goods, non-durable goods and services. Durable goods are commodities that can be stored and have an average life of at least three years. Automobile purchases are the largest item among them. Non-durable goods are those that can be stored, but have an average life of less than three years. Services are commodities that can’t be stored and must be consumed at the place of purchase.

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