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HOT MONEY: Financial capital that quickly moves from one financial asset to another in search of or with expectations of higher interest rates and return. Hot money can move from one bank to another or from one country to another. For banks, hot money usually refers to deposits that exceed FDIC insured limits that bounce around from bank to bank as interest rates change. For countries, hot money refers to financial capital that quickly leaves one country due to exchange rates, interest rate differentials, or economic turmoil, or the threat of war.

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DURABLE GOODS, CONSUMPTION:

Personal consumption expenditures on tangible goods that tend to last for more than a year. Common examples are cars, furniture, and appliances. This is one of three categories of personal consumption expenditures in the National Income and Product Accounts maintained by the Bureau of Economic Analysis. The other two are nondurable goods and services. Durable goods are about 12 percent of personal consumption expenditures and 8 percent of gross domestic product.
Durable goods are consumption goods purchased by the household sector that generally have a useful, satisfaction-providing existence of longer than a year. Household expenditures on durable goods are usually correlated with business cycles. Expansions see more durable goods purchased and contractions see fewer.

The two most important categories of durable goods in the National Income and Product Accounts are "motor vehicles and parts" and the other is "furniture and other household equipment." Each of these is around 40 percent of durable goods. The remaining 20 percent is included in a category marked "other."

Both of the major categories are relatively self-explanatory. The "motor vehicles and parts" entry includes any cars, trucks, motor homes, and tires purchased by the household sector. The "furniture and other household equipment" entry includes sofas, dining room tables, refrigerators, rocking chairs, microwave ovens, and television sets purchased by the household sector.

As a group, durable goods are important to the macroeconomy for two related reasons.

  • One, durable goods last for several years meaning that consumers buy them infrequently. They buy cars, trucks, and other vehicles every 3-8 years. They by refrigerators, stoves, and other large kitchen appliances every 10-20 years. The same time frame applies for household furniture, as well.

  • Two, durable goods are often purchased using credit or borrowed funds. Few people pay cash for a car. Most borrow the funds from banks or other lending agencies. Furniture and appliances are frequently purchased using credit cards or store installment plans. The key is that such borrowing is sensitive to interest rates. Higher interest rates increase the cost of borrowing and make the overall cost of purchasing durable goods greater.

Taken together these indicate that the purchase of durable goods is closely related to business-cycle instability. During the recovery of a business cycle, when interest rates tend to be low, consumers begin purchasing durable goods. These purchases help fuel the ensuing expansion, which adds more income to the household sector and lets consumers buy additional durable goods. However, as interest rates rise during the expansion, and with consumers now possessing most of the long-lasting durable goods that they need, expenditures on durable goods tend to fall. This can trigger, or at least compound, a business-cycle contraction.

For this reason, economists track movements in the durable goods category of personal consumption expenditures for signs of expansion and contraction. If durable goods expenditures begin to fall after months of increase, a contraction could be forthcoming. Alternatively, if durable goods expenditures begin rising after months of decline, an expansion is likely on the horizon.

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Recommended Citation:

DURABLE GOODS, CONSUMPTION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: June 23, 2018].


Check Out These Related Terms...

     | nondurable goods, consumption | services, consumption | gross private domestic investment | government consumption expenditures and gross investment | net exports of goods and services | fixed investment | change in private inventories |


Or For A Little Background...

     | personal consumption expenditures | gross domestic product, expenditures | consumption | consumption expenditures | household sector | gross domestic product | production | product markets | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |


And For Further Study...

     | macroeconomic sectors | circular flow | business cycles | gross domestic product, ins and outs | gross domestic product, income | gross domestic product, welfare | net domestic product | national income | personal income | disposable income | gross national product | real gross domestic product | saving |


Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis | National Bureau of Economic Research |


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