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ABSTRACT: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
The research on welfare implication of determinants affecting aggregate consumption expenditure was justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
conducted by taking Rwanda as an area of study, period 1995- 2015. The researcher’s main purpose was justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
to evaluate the impact of gross domestic product, lending interest rate, inflation rate and exchange rate justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
on consumption expenditure in economy. To achieve the desired objectives, the researcher analyzed justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
how independent variables of the Gross consumption expenditure (GDP, Lending Interest rate, Inflation justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
rate and Exchange Rate) work and how they affect the dependent variable (GCE). Augmented DickeyFuller justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
(ADF) and Phillips- Peron (PP) tests were used for stationarity test. Engle- Granger two steps justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
procedure and the Johansen Maximum Likelihood Methodology were used to see whether variables are justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
co-integrated or not. The series analysis was done using Eviews 8 Software. Those tests revealed that justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
there is co-integration among variables. The researcher found that the economic authorities in Rwanda justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
use different tools of monetary policy and fiscal policy in order to stabilize the economy, using justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
determinants such as: money supply, government spending, credit control, interest rates and other justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
monetary and fiscal measures can be manipulated by the economic authorities of Rwanda to maintain justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
welfare of the society. justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
Keywords: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
Gross consumption expenditure(GCE), Inflation rate measured by Consumer Price Indices(CPI), justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
Exchange rate, Lending interest rate, , Gross domestic product(GDP). justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
x justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
LIST justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
TABLE OF CONTENTS justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
APPROVAL .............................................................................................................................. iv justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
LIST OF TABLES ..................................................................................................................... x justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
LIST OF FIGURES .................................................................................................................. xi justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
GENERAL INTRODUCTION................................................................................................. 1 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.Background of the study ........................................................................................................... 1 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
2.Significance of the study........................................................................................................... 2 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.Scope and period of the study................................................................................................... 3 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
4.Problem statement..................................................................................................................... 3 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
5.Hypothesis................................................................................................................................. 5 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
6.Objectives of the study.............................................................................................................. 6 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
6.1General objectives................................................................................................................... 6 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
6.2Specific objectives .................................................................................................................. 6 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.Research methodology.............................................................................................................. 6 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.1Techniques.............................................................................................................................. 6 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.1.a. Documentary technique...................................................................................................... 7 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.1.b. Interview technique............................................................................................................ 7 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.2 Methods.................................................................................................................................. 7 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.2.a. Statistical method .............................................................................................................. 7 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.2.b. Analytical method .............................................................................................................. 7 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.2.c Historical method ................................................................................................................ 8 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.2.d Comparative method........................................................................................................... 8 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
7.2.e. Econometric method .......................................................................................................... 8 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
8. Organization of the study......................................................................................................... 8 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
CHAP I: REVIEW OF LITERATURE................................................................................... 9 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
INTRODUCTION ....................................................................................................................... 9 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
Definition of the key concepts..................................................................................................... 9 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.1 Welfare:.................................................................................................................................. 9 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.1.a. The Genesis of the Welfare State....................................................................................... 9 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.2 Consumption ........................................................................................................................ 10 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.2. a. Autonomous consumption............................................................................................... 11 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
xiii justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.2. b. Marginal propensity to consume..................................................................................... 11 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.2. c Disposable income ........................................................................................................... 12 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.3 National income ................................................................................................................... 13 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.3.a. Definitions of National Income:....................................................................................... 13 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.3.b Concepts of National Income:........................................................................................... 16 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.4 Interest rate........................................................................................................................... 19 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.4. a. Nominal Interest Rate...................................................................................................... 19 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.4.b Real Interest Rate .............................................................................................................. 20 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.4. c Effective interest rate ....................................................................................................... 20 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.5. Inflation rate........................................................................................................................ 20 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.5.1. Causes of inflation ........................................................................................................... 21 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.5.1.a. The cost push-inflation (On the supply side) ............................................................... 21 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.5.1. b Demand-Pull Inflation (On the demand side)............................................................... 22 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.5.2 Keynesian inflation theory................................................................................................ 23 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.6. Exchange rates .................................................................................................................... 24 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.6. a. Nominal exchange rate (e) .............................................................................................. 24 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
1.6.b. Real exchange rate (ε)...................................................................................................... 24 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
CHAPTER 2 ANALYSIS OF THE STATUS AND TRENDS OF DETERMINANTS .... 27 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
INTRODUCTION ..................................................................................................................... 27 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
2.1. Evolution of gross consumption expenditure in Rwanda 1995-2015 ................................. 27 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
CHAPTER 3 ECONOMETRIC ANALYSIS OF THE RELATIONSHIP OF ................. 35 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
INTRODUCTION ..................................................................................................................... 35 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.1 Model specification.............................................................................................................. 35 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.1.1 Hypothesis of the model ................................................................................................... 36 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.1.2. Expected signs.................................................................................................................. 37 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.1.3 Test and analysis of the data ............................................................................................. 37 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.2. Data processing................................................................................................................... 37 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.2.1. Unit root tests................................................................................................................... 37 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.2.1.a. Why testing stationarity?............................................................................................... 37 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.2.1.b. Interpretation of stationarity test.................................................................................. 53 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.3 Estimation of long run model............................................................................................... 53 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
xiv justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.3.1 Co-integration test............................................................................................................. 53 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.3.2 Interpretation of Johansen Co-integration test output....................................................... 55 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.3.3 Long run output................................................................................................................. 56 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.4 DIAGNOSTIC TESTS ........................................................................................................ 58 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.4.1 Jarque-bera test (Normality test)....................................................................................... 59 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.4.2 Breusch-Godfrey test (Serial correlation LM test) ........................................................... 60 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.4.3 Heteroscedasticity Test (Breusch Pagan Godfrey) ........................................................... 60 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.5 STABILITY TESTS ............................................................................................................ 61 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.5.1 Ramsey reset test............................................................................................................... 61 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
3.5.2 Recursive estimates (OLS only): Cusum test ................................................................... 61 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
CONCLUSION………………………………………………………………………………...64 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
SUGGESTIONS ........................................................................................................................ 64 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
REFERENCES………………………………………………………………………………...66 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
APPENDICES ........................................................................................................................... 68 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
APPENDICES I......................................................................................................................... 69 justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none">
APPENDICES II........................................................................................................................ 7