Factors Affecting Consumption

Question 1

what are they (7)

Answer 1

1. level of disposable income
2. cost of credit
3. household current stock of wealth
4. consumer expectations
5. gov economic policy
6. changes in ER
7. Demographic Factors

Question 2

describe the effect of levels of dispoable income

Answer 2

the higher the income the smaller percentage is spent on consumption of goods/services

Question 3

describe the effect of cost of credit (interest rate)

Answer 3

low interest rates make spending less attractive and loans more attractive increasing consumption

Question 4

describre the effect of households current stock of wealth

Answer 4

people who hold assets/property feel wealther when prices rises but when they fall, people more likely to change spending/saving pattern

Question 5

describe the effect of consumer expectations

Answer 5

impact spending on essentias is small but on discretionary items is big

Question 6

describe the effect of gov economic policy

Answer 6

RBA cash rate = interest rate (same as interest rates_

Fiscal policy = tax