Spending and Saving

Consumption and saving decisions have important effects on individuals and on the whole economy. The chapter begins by examining recent trends in consumption and saving in the major European economies, before setting up a framework for analysis. It then examines the life cycle and permanent income hypotheses, and the Keynesian consumption function. An explanation is given of recent patterns of European consumption and saving, for example, by discussing the effect of financial liberalization. Finally comes an analysis of changes in the UK patterns of spending and saving, including the effect of recent building society windfalls.