2.2.2 Consumption (C)

Question 1

What are the influences on consumption?

Answer 1

• Disposable income
• Savings
• Interest rates
• Consumer confidence
• Wealth

Question 2

What influence does disposable income have on consumption?

Answer 2

• Consumption increases as disposable income increases.
• Consumption decreases as disposable income decreases.

Question 3

What influence does savings have on consumption?

Answer 3

• When savings decrease, consumption usually increases.
• When savings increase, consumption usually decreases.

Question 4

What influence do interest rates have on consumption?

Answer 4

• If interest rates increase, there is a greater incentive to save and less incentive to borrow, therefore decreasing consumption.
• If interest rates decrease, there is less incentive to save and a greater incentive to borrow, therefore increasing consumption.

Question 5

What influence does consumer confidence have on consumption?

Answer 5

• If consumer confidence increases, saving decreases, and consumption increases.
• If consumer confidence decreases, saving increases, and consumption decreases.

Question 6

What influence does wealth have on consumption?

Answer 6

• If consumer wealth increases, then consumption usually increases.
• If consumer wealth decreases, then consumption usually decreases.