In this analysis, we calculate composition, inequality, and marginal propensity to consume(MPC) of household consumption using the Household Income and Expenditure Survey 1982-2007 conducted by National Statistical Office in Korea. Then, we draw robust implications for policies of encouraging consumption by focusing on the different responses to the change of income by decile and whether the income is temporary or ordinary.

First, we analyse the dynamic relationship between the business cycle and consumption. The effect of increased GDP growth rate would increase the private consumption after a quarter. And the effect of the private consumption on GDP growth rate would be the negative in the longer period by deteriorating the structure of consumption.

We also calculate the average propensity to consume(APC) and MPC of the household consumption in 2007. The APCs are 59.1% to 122.8% and the MPCs are 0.39% to 0.64% by income decile. These results show that the lower income group is more sensitive to the change of income.

The people in the low income brackets are usually suffering from liquidity constraints. But, in this analysis, we show that the MPCs of temporary income in small income earners are very small. It might be caused by the uncertainties of the future income. They can also use the temporary income to paying their debts. If the lower income group consider the government's subsidies as temporary income, the effect to encouraging the consumption might be small than expected. So, it's desirable to supporting the lower income group continuously by social safety net.