ABSTRACT
Consumption is quantitatively the most important expenditure category of the national accounts. Also, modelers and statisticians alike seem to agree about the dictum of Adam Smith: ‘consumption is the sole end and purpose of all production’. The national accounts have a well-articulated, granular and estimated definition of consumption. Household consumption is expenditure of households on durable and non or semi-durable goods. Consumption includes some but not all household production for own use. Consumption, as conceptualized and defined in the national accounts, is a monetary flow concept based upon transactions a restricted period of time. Restricting consumption to acquiring instead of using goods and services also has drawbacks. The whole edifice of Dynamic stochastic general equilibrium models starts and ends with consumption. To be able to define permanent income M. Friedman had to use the existing empirical definition of consumption: household purchases, either nominal or on credit, excluding houses.
