The Level of Economic Activity

Impact of Strong Economic Activity on Consumer Spending

• during an expansion, people will feel secure in the jobs and believe they will have stable income

• this increases their confidence leading to higher levels of spending

Impact of Weak Economic Activity on Consumer Spending

• during a contraction, people will be worried about their jobs and part-time/casual workers may have their work hours reduced

• this decreases their confidence leading to reduced spending and more focus on budget items and needs rather than wants

Impact of Strong Economic Activity on Businesses

• during an expansion, businesses will experience an increase in sales/income leading to increased spending

• due to high consumer demand, businesses can increase prices leading to higher profit margins

• business invest in innovation to improve efficiency

Impact of Weak Economic Activity on Businesses

• during a contraction, businesses will experience a decrease in sales/income leading to decreased spending

• reduced spending on employees

• postpone capital expenditure