vely inelastic, while others, like purchases of expensive designer clothing, are highly elastic with regard to personal income. It is difficult to point to one reason why spending on NDG has decreased so much relative to GDP.The most noticeable change of the three components of C is that of Service Spending (S). In 1959, S made up 25.3% of GDP, while in 1999 S comprised 39.53% of GDP. There are probably dozens of reasons for this increase, but I shall try to explore several possible explanations. One of the main components of S is medical expense. In 1999, the CPI for Medical Services was 250.6 (for urban consumers, 1982-84 = 100). This implies that the average cost of medical care is two and-a-half times higher than it was only six to eight years ago. That fact coupled with the fact that more Americans have health insurance now than in the past begins to account for the rise in S relative to GDP. Also, there are more senior citizens alive now than ever before, and those seniors require more medical care, and they need it more frequently. Medicine is also seemingly adversely affected by technology in the sense that in other industries, technology makes it ultimately less expensive to produce, whereas in medicine, technology makes treatment more effective, but also more expensive. All of these facts are compounded because the demand for medical care is both high and inelastic. Medicine isnt the only market that has seen substantial price increases. The CPI for entertainment (movies, concerts, sporting events) in 1997 was 162.5 (1982-83 = 100). It is not surprising that Americans would be spending more money on the least tangible of purchases when one considers that real income has increased from $9,068 in 1959 to $23,310 in 1999 (Chained 1996 dollars). This real increase in income has had a direct effect on Consumer consumption relative to GDP. Since Americans are making more money than ever before (in aggregate), it makes...
