2.2.2 Consumption (C)

Things that affect consumption:

Real income - greater income = greater spending

The marginal propensity to consume increasing

• Consumer confidence

• The wealth effect

  • Wealth = assets - stock concept

  • Income - expenditure = wealth

  • The wealth effect: the more wealth you have, the more you spend

• The interest rate effect

  • The cost of borrowing/the reward for saving

  • When interest increases - saving increases - spending decreases - consumption decreases

• Demographics

  • Age - people spend more/less money in certain points in their life

  • Golden age = less responsibility = more disposable income

  • Lots of young/ old = more spending