Disposable Personal Income Research Articles

Determinants of Young Marrieds' Life Insurance Purchasing Behavior: An Empirical Investigation

The study examines the variables associated with the amount and type of life insurance purchased by a sample of young newly-married couples. Socioeconomic, demographic, psychographic, and other variables are examined by means of Multiple Classification Analysis. The purchase of a larger than average amount of life insurance was found to be much more likely in households where: (1) the husband did not attend college, (2) current and expected household incomes were in the low and high ranges, (3) net worth was greater, (4) the husband had purchased no life insurance before marriage, and (5) the wife had purchased term insurance before marriage. The purchase of term insurance was found to be much more likely in households where: (1) the net worth was greater, (2) the wife purchased term insurance before marriage, and (3) the insurance agent did not influence the decision. The purchase of life insurance is one of the most important consumer purchasing decisions. In the United States, consumers pay out over $24 billion for life insurance premiums or slightly over three percent of their total disposable personal income. These premium receipts, plus the investment income earned on them, has allowed the life insurance industry to become one of the most powerful financial institutions, controlling over $240 billion in assets. One of the most important market segments for the life insurance industry consists of young married couples. Often the first and most important purchases of life insurance are made at this stage of the life cycle. Life insurance decisions made at this time may have a lasting influence on future life insurance purchases. Thus, it is important for the industry to understand the life insurance purchasing behavior of this market segment. This article examines the variables associated with the amount and the type of life insurance purchased by young newly-married couples. Socioeconomic variables, demographic variables, psychographic variables, and other explanatory factors, some of which have not been investigated Dan R. Anderson, Ph.D., CPCU, is Assistant Professor of Business (Risk Management and Insurance) in the Graduate School of Business of the University of Wisconsin, Madison. John R. Nevin, Ph.D., is Assistant Professor of Business (Marketing) in the Graduate School of Business of the University of Wisconsin, Madison. This paper was submitted in April, 1974.

Cross Country Demand and Savings Patterns: An Application of the Extended Linear Expenditure System

PRICES and total consumption expenditure are the usual explanatory variables in applied demand theory. In a previous paper (Lluch and Williams (1975)), it has been shown that at least for one country (U.S.A.) and one model (the linear expenditure system, LES), it is advisable to substitute personal disposable income for total consumption expenditure, and fit the extended linear expenditure system, ELES (Lluch (1973)). The purpose of this paper is to examine whether the same substitution is advisable when searching for systematic cross country variations in demand patterns. To this effect, we report the empirical results of fitting ELES to short time series on income, expenditures and prices in 14 countries, for an 8 commodity breakdown. The 14 countries are a subset of those used for the LES fit in Lluch and Powell (1975), (henceforth referred to as L-P).1 The set of parameters in ELES is the same as in LES, plus i, the marginal propensity to consume.2 The obtained ELES parameter estimates differ from estimates reported in L-P. Which set of estimates one should use in applications is an open question, but the following remarks can be made on ELES (versus LES) results. First, the cross country variation of the estimated cost of subsistence is considerably smaller. Second, cross country patterns in key elasticities are more discernible. The paper is organized as follows. Section II contains the statement of the fitted model. The empirical results are given in section III. Cross country patterns in ELES estimates of key elasticities are sought for in section IV, using GNP per capita as the explanatory variable. A summary and suggestions for further work is given in section V.

Chapter II. The Forecast

The movement of the economy since we last reported seems to have been rather weaker than we were expecting. Output seems to have fallen in the fourth quarter of last year—a development which is all the more surprising since consumers' real incomes have been much higher than we anticipated; real personal disposable income is officially estimated to have risen by nearly 4 1/2 per cent in the third quarter of last year compared with our November estimate of only half this amount. The wage and salary bill rose by 8 per cent in current prices as thresholds were paid under Stage 3 agreements, as London weighting was increased and as post-Stage 3 catch-up settlements became effective. Current grants to persons rose by 15 per cent as the large uprating of pensions came into effect. The Forces too appear to have been given a large pay rise, and threshold increases and London weighting have also raised pay in other parts of the public sector.

Household Demand for Durable Goods: The Influences of Rates of Return and Wealth

They indicate that purchases of durable goods (DUR) are the third most volatile component behind inventory investment (INV I) and federal government expenditures (F GOV). The correlation coefficients between GNP and its components listed in the second row of table 1 show that durable goods purchases have the third hiighest covariance with GNP after inventory investment and nonresidential investment (NRI). Theoretically, these purchases represent either changes in the size of the household portfolio through changes in the flow of savings, or a reallocation of accumulated wealth among assets in response to changes in rates of return. Empirically, some effort has been given to examining the separate influences of rates of return and income. Hamburger (1967) found that interest rates, the price of durable goods relative to other prices faced by the consumer, and disposable personal income all have a significant impact on purchases of durable goods. portance of these variables as sources of fluctuation in purchases. Motley (1970) included a user cost of real assets variable in addition to the rate on savings deposits and expected income, and found in sharp contrast to Hamburger that none of them had a significant influence on the demand for the sum of durables and housing. The analysis of fluctuations in durable good purchases presented here differs from its prede-

THE TREATMENT OF INTANGIBLE RESOURCES AS CAPITAL

The author describes the results of his current research designed to measure total investment, tangible and intangible, and the derived capital stocks for the U.S., 1929–1966. With respect to total investment, the estimates show a marked increase in its ratio to GNP. All of the increase occurs in the intangible component comprising R & D, education and training, health, and mobility. The increase was concentrated in the government sector, although households increased the proportion of disposable personal income devoted to total investment.Consistent with the relative investment trends, the stock of intangible capital grew considerably faster than the tangible stock. The growth of total capital stocks was somewhat less than that of GNP, however, in both current and constant prices. Thus, the rate of return on total capital rose somewhat over the period. Average rates of return on human and nonhuman capital were closely similar.In real terms, the growth of total capital stocks accounted for two‐thirds of the growth in real GNP, 1929–1966. One‐third of the growth is attributed to residual forces, chiefly economies of scale, changes in inherent quality of human and natural resources, changes in values and motivations, and changes in rates of utilization of capacity.The growth of the ratio of real intangible stocks to real tangible stocks accounted for less than half of the increase in total factor productivity 1929–1966. This is significantly less than the contribution of intangibles as estimated by Denison, and the author adduces several reasons why his estimates may understate the contribution. Nevertheless, it seems that the net effect of the residual forces enumerated above must also have made a substantial contribution to the growth of tangible factor productivity and real GNP over the 37‐year period.

Tax Changes Linked to Government Expenditure Changes and the Magnitude of Fluctuations in National Income

Governments, encouraged by their economic advisors, often change rates of taxation in line with changes in government expenditure in the belief that this will reduce the multiplier effect of government expenditures and so help to avoid fluctuations in national income. This belief is presumably based on the use of static models or unlagged dynamic models, and is correct in the context of such models. However, if there are time lags in the system, say a lag between changes in consumption and changes in personal disposable income, the appropriate model to use is a dynamic one. Section I of the present paper uses a simple dynamic model, compares results with a lagged and unlagged consumption function, and demonstrates that changing tax rates in line with government expenditure changes may prove destabilizing.1 Section II recognizes that the government sets tax rates not revenues, and performs a simple simulation for the period 1963-68 in order to examine the effect on tax revenues of setting tax rates to equate expected tax revenues (given income predictions derived from alternative expectations functions) to government expenditure.

The Domestic Toy Industry

1) The sharp rise in disposable personal income, out of which comes toy spending, should continue for the foreseeable future. 2) The major toy companies have shown the ability to capture a growing share of the disposable consumer dollar by means of heavy promotional programs. 3) Because of their managerial and financial strength, the majors have (a) made it increasingly hard for the smaller firms to compete, and (b) gained the upper hand vis-a-vis wholesalers and retailers.

AN INVESTIGATION OF FACTORS ASSOCIATED WITH VARIATIONS IN THE RELATIVE IMPORTANCE OF COMMERCIAL-BANK RESIDENTIAL REAL-ESTATE LOANS*

SIGNIFICANT INTERSTATE VARIATIONS in the residential real-estate loan holdings of commercial banks are revealed through an examination of commercial-bank balance sheets. Commercial-bank residential real-estate loans, as a percentage of total bank earning assets (defined as loans plus investments), varied from 2.49 to 24.44 per cent during the 12-year period, June 30, 1953 through June 30, 1965. This dissertation undertakes to investigate factors associated with the observed interstate variations in commercial-bank residential real-estate loans. The sample covers the period June 30, 1953 through June 30, 1965 and includes all banks insured by the Federal Deposit Insurance Corporation. The method used in this study is both analytical and empirical. First, the study identifies factors which might account for the observed variations; i.e., an model is developed based upon previous research and discussion in the areas of residential-housing activity and commercial banking. Second, after suggesting quantitative measurements for the factors included in the explanatory model, the study explores statistically the relationship of these factors to commercial-bank residential real-estate loans. Multiple-correlation analysis is used to estimate the relationship between commercialbank residential real-estate loans, expressed as a percentage of total bank earning assets, and seven explanatory variables. The explanatory variables, which relate to the demand for and supply of residential real-estate credit, include: (1) growth in adult population, (2) current disposable personal income, (3) the cost of mortgage credit, (4) business loans at commercial banks, (5) competition from nonbank, residential real-estate-oriented financial institutions, (6) state banking structures (branch banking versus unit banking) and (7) the liability structure of commercial banks. The statistical procedure consists in computing coefficients of gross determination and coefficients of partial determination for the variables. Regressions are fitted to data for each of the 48 contiguous states and the District of Columbia for each year: a total of 637 observations. The explanatory model accounts for 69.31 per cent of the variation in commercialbank residential real-estate loans. However, four of the explanatory variables-liability structures, state banking structures, current disposable personal income, and the cost of mortgage credit-account for 92 per cent of the explained variation. Thus, the additional variables, as measured for the implicit regression equation, have only nominal explanatory value. The statistical inferences drawn from the significant relationships were: (1) Liability structures of commercial banks. The relationship of commercial-bank liability structure (measured by the ratio of time deposits to total deposits) to residential real-estate loans suggests that commercial bankers may have employed an asset-allocation approach to their investments during the period investigated. Basically,

An Investigation of Factors Associated with Variations in the Relative Importance of Commercial-Bank Residential Real-Estate Loans

SIGNIFICANT INTERSTATE VARIATIONS in the residential real-estate loan holdings of commercial banks are revealed through an examination of commercial-bank balance sheets. Commercial-bank residential real-estate loans, as a percentage of total bank earning assets (defined as loans plus investments), varied from 2.49 to 24.44 per cent during the 12-year period, June 30, 1953 through June 30, 1965. This dissertation undertakes to investigate factors associated with the observed interstate variations in commercial-bank residential real-estate loans. The sample covers the period June 30, 1953 through June 30, 1965 and includes all banks insured by the Federal Deposit Insurance Corporation. The method used in this study is both analytical and empirical. First, the study identifies factors which might account for the observed variations; i.e., an model is developed based upon previous research and discussion in the areas of residential-housing activity and commercial banking. Second, after suggesting quantitative measurements for the factors included in the explanatory model, the study explores statistically the relationship of these factors to commercial-bank residential real-estate loans. Multiple-correlation analysis is used to estimate the relationship between commercialbank residential real-estate loans, expressed as a percentage of total bank earning assets, and seven explanatory variables. The explanatory variables, which relate to the demand for and supply of residential real-estate credit, include: (1) growth in adult population, (2) current disposable personal income, (3) the cost of mortgage credit, (4) business loans at commercial banks, (5) competition from nonbank, residential real-estate-oriented financial institutions, (6) state banking structures (branch banking versus unit banking) and (7) the liability structure of commercial banks. The statistical procedure consists in computing coefficients of gross determination and coefficients of partial determination for the variables. Regressions are fitted to data for each of the 48 contiguous states and the District of Columbia for each year: a total of 637 observations. The explanatory model accounts for 69.31 per cent of the variation in commercialbank residential real-estate loans. However, four of the explanatory variables-liability structures, state banking structures, current disposable personal income, and the cost of mortgage credit-account for 92 per cent of the explained variation. Thus, the additional variables, as measured for the implicit regression equation, have only nominal explanatory value. The statistical inferences drawn from the significant relationships were: (1) Liability structures of commercial banks. The relationship of commercial-bank liability structure (measured by the ratio of time deposits to total deposits) to residential real-estate loans suggests that commercial bankers may have employed an asset-allocation approach to their investments during the period investigated. Basically,

A Dynamic, Personal Savings Function and Its Long-Run Implications

T HE results presented in this paper are (1) A time series of personal savings is well explained by the dynamic savings function st = ast 1 + 8z A Yt + ut. This model was previously formulated (but tested only for the United States and Canada) by Professors Houthakker and Taylor [1]. (2) The steadystate or long-run savings function implicit in the above dynamic formulation, s/y = a2 + 12 (Ay/y) fits remarkably well to international cross-section data. (3) The coefficients of the long-run savings function, as obtained by application of least squares on the function, is statistically equal to the coefficient obtained indirectly from the dynamic savings function. This implies that both dynamic and steady-state savings behavior are adequately described by st = ast+ /3Ayt + ut. (4) A few pitfalls in estimation of economic relationships when employing cross-section time series data are revealed. It will be shown that the long-run savings function implied in the Houthakker-Taylor function supplemented by some additional conditions, is precisely the long-run savings function of Modigliani [2]. Therefore, the present attempt must be regarded as a synthesis of the two theories. We shall have the benefit of more observations per country than the above mentioned authors in deriving our empirical results. II The Dynamic Savings Function Let St, yt, and at denote (personal) savings, (personal disposable) income, and non-depreciating assets at time t, in per capita terms. The Houthakker-Taylor model in terms of these variables is: St = a +at+yyt (1) dat/dt = st (2) Thus, savings is a linear function of assets and income, and the rate of change of assets at any moment of time is the savings at that moment. The long-run implication of this model has not been explored and this we shall do below. To derive the long-run effects of equations (1) and (2), we need to know something about the growth of income. Let us assume 1 that: (3) y= p, where p is a positive constant. This equation thus implies that the rate of growth (of

Life Insurance Policy Loans: The Emergency Fund Concept: Comment

Dr. Glenn L. argues, in a paper in a recent issue of this Journal, that the emergency fund concept was well supported empirically during the period ol 1920 to 1941.1 To lend credence to this conclusion, he presents in Chart 1 convincing empirical evidence which demon. strates that a strong inverse relationship existed between the policy loan-reserve ratio and disposable personal income dur ing this period. Dr. also analyzes the cyclica behavior of new policy loans and disposa. ble personal income during the period o: 1947 to 1961 and concludes that little negative correlation existed between these two variables. The empirical evidence thahe presents to corroborate this conclusion is a correlation coefficient of a minus .0449. However, Dr. does not analyze critically the cyclical behavior of nevw policy loans and personal income during different stages of the postwar business cycle. This latter statement is not intended to be overly critical of his methodology but merely suggests that new light ma) be shed on the problem by analyzing boti variables during distinct stages of the business cycle. Therefore, the purpose o this rejoinder will be to extend Dr. Wood

AN ECONOMETRIC ANALYSIS OF THE ROLE OF FINANCIAL INTERMEDIARIES IN POSTWAR RESIDENTIAL BUILDING CYCLES*

THE PURPOSE OF THIS STUDY is to develop a model of the residential construction sector of the U.S. economy with particular emphasis on the financial factors which provide a link between construction activity and the monetary sector. It was undertaken as part of a larger project to incorporate monetary policy variables into the econometric model constructed by the Research Seminar in Quantitative Economics at The University of Michigan. As this is an annual model designed for short-run forecasting and policy analysis, we have estimated our equations for the residential construction sector using postwar annual data. Our model consists of a set of equations which determine the flow of funds through financial intermediaries and their influence on construction activity. The rate of accumulation of savings deposits is assumed to depend on interest rates and personal financial saving. The inflow of deposits together with interest rates and other variables then determine the volume of commitments made by financial institutions to supply residential mortgage funds. The supply of mortgage commitments then affects housing starts and residential construction expenditures. Housing starts are also assumed to depend on the level of inventories of houses under construction and vacant units, the ratio of an index of rents to an index of construction costs, net household formations and personal disposable income. The results indicate that interest rates have a substantial influence on construction activity, but that the resulting changes in the Gross National Product are small relative to the cyclical fluctuations experienced in the postwar period. This influence operates not only through the effect of changes in long-term rates on the mortgage lending of financial intermediaries, but also through the sensitivity to short-term rates of the flows of deposits into these institutions. In addition, it was found that the substantial increase in the rate of accumulation of savings deposits by households during the recent period 1961-63 played a key role in maintaining the high volume of housing starts that took place. This increase occurred as a result of the rapid increase in household holdings of financial assets in general, rather than as a result of shifting out of marketable securities in response to a decline in interest rates, as was the case in earlier periods of increasing building activity such as 1954 and 1958.

An Econometric Analysis of the Role of Financial Intermediaries in Postwar Residential Building Cycles

THE PURPOSE OF THIS STUDY is to develop a model of the residential construction sector of the U.S. economy with particular emphasis on the financial factors which provide a link between construction activity and the monetary sector. It was undertaken as part of a larger project to incorporate monetary policy variables into the econometric model constructed by the Research Seminar in Quantitative Economics at The University of Michigan. As this is an annual model designed for short-run forecasting and policy analysis, we have estimated our equations for the residential construction sector using postwar annual data. Our model consists of a set of equations which determine the flow of funds through financial intermediaries and their influence on construction activity. The rate of accumulation of savings deposits is assumed to depend on interest rates and personal financial saving. The inflow of deposits together with interest rates and other variables then determine the volume of commitments made by financial institutions to supply residential mortgage funds. The supply of mortgage commitments then affects housing starts and residential construction expenditures. Housing starts are also assumed to depend on the level of inventories of houses under construction and vacant units, the ratio of an index of rents to an index of construction costs, net household formations and personal disposable income. The results indicate that interest rates have a substantial influence on construction activity, but that the resulting changes in the Gross National Product are small relative to the cyclical fluctuations experienced in the postwar period. This influence operates not only through the effect of changes in long-term rates on the mortgage lending of financial intermediaries, but also through the sensitivity to short-term rates of the flows of deposits into these institutions. In addition, it was found that the substantial increase in the rate of accumulation of savings deposits by households during the recent period 1961-63 played a key role in maintaining the high volume of housing starts that took place. This increase occurred as a result of the rapid increase in household holdings of financial assets in general, rather than as a result of shifting out of marketable securities in response to a decline in interest rates, as was the case in earlier periods of increasing building activity such as 1954 and 1958.

‘Christmas Is Coming’

A THE OLD SAYING GOES, Christmas is coming (eventually), the retail goose is getting fat, and millions of Americans are pumping dollars into the cash registers. At the same time, thousands of investors, perhaps with visions of the plumpness of this retail goose flashing dollar signs, seem willing to pay 20 to 30 times latest 12 months earnings for the shares of prominent general merchandise retailers, such as Sears Roebuck, J. C. Penney, Federated Department Stores, and May Department Stores. However, over the next several years, the financial pickings for investors in these shares may be somewhat leaner than current expectations. For one thing, the earnings that are so opulently appraised today may prove to be top of the cycle earnings and vulnerable to retrenchment in the next several years. To be more specific, between 1954 and 1964, general merchandise retail spending grew at a 4.5% annual rate. However, during this period there were three exceptionally strong years (1955 when volume expanded 9.6%, 1959 when it was up 8%, and 1964 when sales soared 9.9%), and following these unusual years, in the past, volume has corrected back to the long-term trend with an unusually bad year. After the strong 1959 showing, for example, sales expanded only 2.4% in 1960, and only 2% in 1961. In the earlier cycle, there was a delayed reaction, with the 9.6% advance of 1955 followed by a solid 5.5% jump in 1956. But then volume rose only 2.9% in 1957, and the gain in 1958 was a miniscule 0.9%. The point of all this is that retail sales (and its component general merchandise sales) are a function of personal disposable income, and 1964 was obviously a very exceptional retail year with volume growth well above the long-term trend. Not only were economic factors uncommonly favorable in 1964, but the weather was also extremely good, with the mix between hot and cold blended so as to stimulate maximum seasonal buying. 1965 may well prove to be another year of above average growth for general merchandise sales, but most experts do not foresee the estimated 8 % gain of the first six months being sustained throughout the year. In fact, already there is some apprehension because the recent cut in excise taxes has not stimulated spending to any degree. The Investment Research Department of a leading New York City bank recently projected a 6% gain in general merchandise sales for the full year, which suggests a definite slackening of the first half growth during the second six months of the year. A growth of 6% would make 1965 a good but not an exceptional year; however, the really salient point is that a 9.9% year followed by a 6% year implies that a slowdown in 1966, possibly extending into 1967, is a logical assumption. In fact, since 1964 and 1965 were both well above the long-term historical growth trend of about 4.5% annually, the slowdown or correction could be unusually pronounced and prolonged. The implications of a decline in the growth rate of general merchandise sales on retail profitability is considerable. Past results indicate conclusively that profitability is a function of the rate of change in volume rather than a function of the level of volume. For example, the pre-tax margin of 10 major general merchandise retailers declined from 6.6% in 1955 to 6.1 % in 1958, and from 6.8% in 1959 to 6.2% in 1960. As a result, although they posted gains in volume from 1959 to 1960, Sears reported a 2.5% decline in earnings, Penney showed a 14.5% drop, and Federated a 4.5% fall. In 1964 the pre-tax margin of the 10 retailers mentioned before reached a high for the last decade of 7.2%, but it is difficult to foresee further gains of material importance in profitability. This cyclical sensitivity of retail profitability reflects the operating leverage inherent in a relatively large amount of fixed costs (i.e., leases, lighting, overhead, interest, etc.) and the considerable costs, employment, and stock levels that have to be budgeted in advance. Thus the expectations of retailers as reflected in their budgets can have an important impact on profits depending on their rightness or wrongness. In fact, the somewhat disappointing first quarter earnings results for several major retailers in the face of solid gains in volume was partially a function of sales being slightly below budget with a disproportionate effect on earnings. For example, in the first half of 1965, Penney's sales Barton M. Biggs is a partner of Fairfield Partners, a private investment fund. He received his B.A. from Yale University and an M.B.A. with distinction from New York University. He was formerly a vice president in institutional research at E. F. Hutton & Co.

The Impact of the Business Cycle on New Life Insurance Purchases: Comment

The purpose of this communication is to point out the need for adjustment of the data in the Rejda study I in order to pursue the announced objective of the research. Professor Rejda is testing the hypothesis that new ordinary life insurance purchases are (or are not) affected by the business cycle. What classification and adjustments will assist in isolating the effects of the cycle on life insurance purchases? Professor Rejda's classification of new life insurance purchases into classes of ordinary, group, and industrial is indicated by the hypothesis that lower income people may be more severely affected by business cycles. Hence he is correct in not examining the aggregate of all types of life insurance since doing so masks the supposed relation. Likewise, since he proposes to use the cyclical analysis of the National Bureau of Economic Research to establish the months of expansion and contraction and to compare disposable personal income during such months with new life insurance purchases in such months, he has

The Direction of Change of Consumption During Business-Cycle Contractions

C =the aggregate deflated value of services received by consumers= deflated consumer expenditures (including imputed interest charges) minus the net change in the stock of goods held by consumers2 Y aggregate deflated earned income = the sum of disposable personal income, corporation retained profits and the excess of wage accruals over disbursements, divided by the consumer price index K a fixed coefficient 1 > K > 0 .

CONSUMER INSTALMENT CREDIT AS A VARIABLE IN THE QUANTITY AND VELOCITY OF MONEY IN CALIFORNIA, 1950-60*

THIS DISSERTATION IS a comprehensive analysis of the functional activities of financial institutions in supplying loanable funds for consumer instalment credit in a given market. The approaches used were (1) to examine a given market with respect to the volume and velocity of short-term consumer instalment credit supplied by commercial banks, financial intermediaries, and trade sources; (2) to analyze the changes in the relative market positions of suppliers of this credit; (3) to evaluate the effectiveness of specific and general monetary controls in this market; and (4) to evaluate the state laws pertaining to commercial banks and financial intermediaries with respect to their influence over these agencies. The results of this study indicated the extent to which monetary policy and controls over financial intermediaries were inadequate in controlling the supply of loanable funds for this market. This was evident from the aggregate volumes and velocity of loanable funds resulting from competitive practices, which, in turn, affected the shifting of loan funds among the suppliers of funds and in the different sectors of the market. During this 10-year period the annual average rate of change in the volume of these credit funds exceeded the annual average rate of change in both disposable personal income and taxable retail sales. The annual average rate of change in disposable personal income was 8.5 per cent, while the average annual rate of change in consumer instalment credit was 22.6 per cent and taxable retail sales 18.7 per cent. The annual year-end volume of loanable funds supplied by the commercial banks not only fluctuated more than the loan volume of the financial intermediaries but also declined as a proportion of the total aggregate volume of credit. In 1950 the commercial banks supplied 68.5 per cent of the total volume of loanable funds supplied by financial and non-financial intermediaries. By 1959 the

Sensitivity of Corporate Sales to Income Changes

The sensitivity of corporate sales to changes in income levels is a useful and basic concept. This article develops—for a broad range of industries—the historical, long-range pattern of fluctuations in corporate sales associated with fluctuations in disposable personal income. If also suggests further use of such income sensitivity of demand coefficients for various inter-industry comparisons.

HIRE PURCHASE AND THE STABILITY OF CONSUMPTION

SummaryThe argument of this paper may be summarised:Consumption expenditure depends upon the sum of households' income after tax plus the rise in outstanding hire purchase liabilities. Hence when hire purchase outstandings rise, say from zero, consumption rises. This higher level of consumption expenditure will only be maintained so long as hire purchase outstandings continue to rise by the same annual amount. But outstandings will not continue to rise if personal disposable income is fixed, because a rise in outstandings necessitates a rise in hire purchase repayments and there is a limit to the ratio of repayments to income which people are prepared to undertake. Hence at some point consumption falls.In essence this argument is that the average propensity to consume rises when hire purchase is introduced and falls subsequently. This proposition remains substantially true if personal disposable income is not fixed but is rising. Thus if national income is rising at a constant rate because of a rise in the work force, hire purchase outstandings will initially grow at a more rapid rate than national income in order to reach the acceptable repayments/income ratio for the existing population. Subsequently hire purchase outstandings must grow less rapidly at a rate equal to national income. This fall m the rate of growth of outstandings involves a lower average propensity to consume.Finally, if national income falls in a recession it seems likely that hire purchase outstandings not merely do not rise but may fall sharply as the disemployed and people on short time seek to pay off their hire purchase contracts without entering into new contracts. This will cause the average propensity to consume to fall further. In the subsequent boom this process may be reversed.The first two paragraphs of this summary suggest a once‐for‐all fluctuation in the average propensity to consume. The third paragraph suggests that the fluctuation may be perpetuated in a steady (or unsteady) cycle.

Economic and Marketing Predictions for 1960

The authors predict that … The economy should reach new peaks in 1960, but with less of an improvement than in 1959. Total disposable personal income should reach the record total of $354 billion. Prices will increase only slightly. Personal consumption expenditures will also reach new heights, with spending on durable goods leading the way. Demand for credit will be heavy. Some shrinkage of the housing market is expected. A recession seems unlikely before the latter part of 1960 at the earliest.