Sample Essay

The consumers have purchasing power has reduced due to inflation. Inflation is the persistent increase in the price of products over a long period. When the prices of products and services increase, the consumers restrict their consumption to basic goods and services only. This depends on the level of income of the consumer; those with high level of income continue to consume normally while those with low income have to limit their expenditure. In addition, the marginal propensity to consume (MPC) and marginally propensity to save (MPS) reduces making the consumers to limit their expenditures. MPS refers to the changes amount saved in response to the changes in the consumer income while the marginal propensity to consume is the changes in consumptions because of adjustment of the income. More so “It should be noted that the sum of the marginal propensity to consume and the marginal propensity to save is equal to one” (Geetika, et, al, 2008, P.497). The MPS and MPC affects all kind of business dealing with either basic or luxury goods, therefore, it is of the essence to begin a new business when the economy is in a boom and not a recession since the consumer spending power is unfavorably affected by the poor economy.

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