Bachelor of Arts (BA)
Department or Program
Kent R. Grote
In light of evolving conditions and consumer behavior, traditional economic models have failed to account for the impact of debt on consumer spending behavior, leading to the formation of inaccurate predictions regarding economic policy. Therefore, in response, this thesis will create a model, which incorporates the impact of debt (increasing and repayment) on the spending behavior of individuals over their lives. At its center, the new model proposes a new consumption equation, through the introduction of the concept of available income, to account for the increase in debt during the earlier years and the repayment in the later years of one’s life. From this model, it can then be argued that borrowing generally leads to a negative net change in real GDP, and thus will have negative implications for the economy as a whole. This will further help to foster insights regarding the recent ineffectiveness of fiscal policy.
Hennum, Jenny, "A New Theory of Consumption: How Debt Has Changed Spending Habits" (2016). Senior Theses.