2.2.2 Consumption (Tuition Notes)

Evaluation of Consumption Factors?

• Disposable Income

• Consumer Confidence and expectations

• Wealth effect

Disposable income evaluation Consumption factors? (Consumers might not increase consumption just because disposable income increases :

• If disposable income rises, some people may save instead of spend, which is a leakage.

• If inflation is higher than the wage rate, people spend less unnecessarily or more necessity.

Consumer Confidence and Expectations?

• Consumer confidence depended on the job of the person.

• Public sector will continue to spend, compared to zero hour contract workers (uber drivers). Because they are confident in their job security.

• Knowledge : If you didn't know about inflation levels you would maintain your spending habitat and still spend.

• Rich people have a lot of money to spend regardless of their confidence in the economy.

Wealth effect?

• Savings : Having a lot of wealth accumulated doesn't guarantee an increase in spending. Individuals may continue savings.

• Assets can be volatile (unstable).

• Share prices can be volatile, depending on asset.

• Values fluctuate ( change ) and may even depreciate.