2.2.2 Consumption (C) Flashcards
1
Q
What is consumption
A
Spending by households on goods and services and is the main component of AD (65%)
2
Q
What are the main determinants of Consumption
A
Interest rates - if interest rates rise, it costs more to borrow, increases OC of spending, and consumption decreases
Consumer confidence - if householders feel secure in their jobs, they are more likely to buy goods and services. Consumption increases
Wealth effect - increase in share or house prices means households are willing and able to spend more. Consumption increases
Level of employment - the higher the level of employment, the more will be spent in a country. Consumption increases