Absorption in economics

Absorption is not a common term but refers to the total level of spending that occurs in an economy. It includes import spending but excludes exports. It shows the total amount of consumption by people in an economy regardless of the origin of the goods and services.

Absorption includes spending on all goods and services. Countries with a high marginal propensity to consume tend to have a high absorption rate. For example, the UK and the US have had a high level of absorption.

If absorption is greater than production then there will be a deterioration in the current account balance of payments.

The term absorption was first mentioned by Sidney Alexander in 1952 in a discussion of the Balance of payments.

The absorption rate often refers to the housing market and the rate at which homes on the market are sold within a certain time period.

Related concepts

Published 12 November 2012, Tejvan Pettinger. www.economicshelp.org

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