Consumer Expenditure

Consumer Expenditure

1. Real Disposable Income

   • Richer households/economies spend more than poorer ones.
   • Average propensity to consume tends to fall as disposable income rises

2. Wealth

   • Can be in the form of home, savings account and shares
   • The more wealth people have, the more they spend.
   • increases consumer expenditure

3. Consumer Confidence & Expectations

   • Consumers feel optimistic about the future so spend more

4. Interest Rate

   • Cheaper for consumers to borrow
   • Reduces incentive to save
   • People who are paying interest on a loan have more money to spend
   • Net savers (save more than spend) ability to spend will fall
   • Spending may fall if people think reduction is temporarily or if there will be a greater reduction later on

5. Age & Structure of Population

   • Young and elderly spend a higher proportion of income

6. Distribution of income

   • Poop people spend higher proportion of income
   • Government could redistribute income to increase CE

7. Inflation

   • If people expect prices to rise in future - may spend now
   • People could save more to maintain the real value at periods of high inflation