Factors affecting consumption

Question 1

What factors affect consumption

Answer 1

Interest rates
income tax
wealth
consumer confidence
income

Question 2

What is the flow chart for how high interest rates affect consumption

Answer 2

interest rates increase-cost of borrowing and reward for savings increase-spending decreases as discretionary income decreases as there are higher mortgage payments-savings decreases-consumption and AD decreases.

Question 3

What is wealth

Answer 3

the abundance of valuable financial assets or physical possessions

Question 4

What are the different types of wealth and give examples

Answer 4

Monetary wealth-non physical assets
stocks
savings
pensions

Physical assets
cars
properties
houses

Question 5

What is consumer confidence

Answer 5

Expectations about the future including incomes,jobs,interest rates and prices

Question 6

What causes low and high consumer confidence

Answer 6

Low consumer confidence
Fear of:
recession
unemployment/job security
lower income
high tax

High consumer confidence
Positive expectations of
boom in the economy
high sales,profits,revenue
Economic growth

Question 7

How does a decrease consumer confidence affect consumption

Answer 7

Consumer confidence decreases due to fear of recession-spendings decreases in households-consumption decreases

Question 8

Use a counter argument on how an increase in income affects consumption

Answer 8

Rise in income can lead to a higher disposable income increasing consumption however a low consumer confidence about the future of the economy may lead to a decrease in consumption.