... trend, thus suggesting there are no dramatic long-run shifts in the factors that determine consumption. Real disposable income affects consumption (every 1% change in real disposable income results in a 0.4% change in the consumers' expenditure). Other factors that affect consumption are the consumers' real tangible assets; the consumers' real financial liability and an index of consumers' confidence. In the 1950s and 1960s, due to the development of new theories and the relative economic stability, economists believed that consumer spending was one of the best-understood and best-forecast variables in economics. However, this was deemed to be not true when in the early 1970s and late 1970s there was a fall in the proportion of personal disposable income consumed which was not predicted in the existing equations. The Keynesian consumption function C=co + bY , thus Keynes argued that 'The fundamental psychological law....is that men are disposed, as a rule and on the ...

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