Publication Date

11-1976

Advisor(s) - Committee Chair

Robert Pulsinelli, John Wassom, Kenneth Cann

Degree Program

Department of Economics

Degree Type

Master of Arts

Abstract

According to the concept of the Life Cycle Hypothesis, the propensity to consume or the level of consumption cannot be explained by any specific variable but is dependent on a cluster of variables, from which transitory income effects have been removed. The main attempt of the paper is to test the life cycle variables to see if they significantly determine the variation of the percent of consumption spent on food, recreation, and education, respectively. The technique employed in doing so is Principal Component Analysis, which helps to eliminate multicollinearity, and lessens or eliminates the degree of freedom problem that occurs in the Multiple Regression Analysis. Moreover, the writer believes Principal Component Analysis approach is the statistical analogue to the Life Cycle Hypothesis.

The results of the studies are: (1) The percent of consumption spent on food would increase if the family size decreases, the number of children in the family decreases, the individuals get older, and as the number of older members in the family increases. These results were found across the age and city classifications. (2) The percent of consumption spent on recreation would increase with the family size, the number of children in the family. Also, the percent of consumption spent on recreation varies inversely with age. This finding is supported by the age and city data, but across occupation the life cycle variables are not significant determinants of percent spent on recreation. (3) The percent of consumption spent on recreation fluctuates inversely with percentage spent on food, but follows the similar trend of percent spent on recreation. The larger family size and the more children in the family, the higher education spending out of the budget, while the older the family head and the more older members in the family, the lower the percentage spent on education. This finding is supported by all the data utilized except the urban occupation data.

Disciplines

Economics | Social and Behavioral Sciences

Download

Included in

Economics Commons

Share

COinS