Consumer Spending Factors New

Consumer Spending Factors New

1. Real Income

   • Y ↑ faster than PL, Real Y ↑, ↑ real purchasing power

2. Indirect tax

   • ↑ = ↑ PL, ↓ real Y

3. Direct tax

   • ↓ = ↑ disposable Y

4. Interest rates (0.5% from 2009)

   • ↓ = ↓cost of paying mortgage debt, ↑ effective disp. Y

5. Household wealth

   • ↓house price = ↓ house equity (-ve wealth effect) (market val - outstanding mortgage loan)

6. Consumer confidence (survey)

   • Unemployment, debt, econ. growth, house prices
   • Keynes: uncertain 'animal spirits' agents affect C, I, saving

7. Credit supply

   • Banks ↓ willing to lend - ↑ interest loans
   • ↓ mortgage finance = need big deposit

8. Distribution of income

   • Low Y = ↑ propensity to spend
     • Y redistributed to lower incomes, might D

9. Demographic

   • Expanding pop = ↑ demand