DP13687 The Extensive Margin of Aggregate Consumption Demand
About half of the aggregate change in US non-durable consumption expenditure is due to changes in the products entering households’ consumption basket (the extensive margin). Changes in the basket are driven by fluctuations in the rate at which households add new products; removals fluctuate little. These patterns are largely explained by the fact that households respond to income increases by adopting products already available on the market in their consumption basket. Fluctuations in household adoption cause a bias in the measurement of inflation, drive the aggregate demand for new products, and amplify the effects of aggregate shocks.