Modelling Real Private Consumption in Tanzania

Abstract

The research aimed at assessing the impact of fiscal policy, interest rate and inflation on private consumption in Tanzania. Specifically, this proposed study is aiming at identifying the impact of fiscal policy, interest rate and inflation as the main characteristics which affecting private consumption. The study used time series data covering the period from 1972 to 2019. In this study the researcher used National Bureau of Statistics (NBS), Bank of Tanzania (BOT), World Bank (WB), and International Monetary Fund (IMF) as sources of secondary data. Study used descriptive study design. The study used quantitative approach. Descriptive statistics, correlation, Johansen co-integration test and error correction regression was used during analysis. Also for testing stationarity augmented dickey fuller unit root test was used. Private consumption is one of the important components of aggregate demand contributing about two third of the gross domestic product. The study found that money supply affects real private consumptions in Tanzania. Also interest rates affect real private consumptions in Tanzania. Disposable income affect real private consumptions in Tanzania and inflation affect real private consumption. Disposable income has been suggested by this study as the most important determinant of real private consumption magnitude. It is recommended that users must be a little bit keener with consumption based on what magnitude of disposable income.