2.2.2: Consumption

• Disposable Income: The amount of money available to spend on goods and services after taxes and benefits
• Factors affecting consumption: An increase in disposable income increases consumption
• Factors affecting consumption: Increase in asset value makes people feel richer, so they will spend more
• Factors affecting consumption: Higher confidence leads to higher consumption
• Factors affecting consumption: Lower interest rates reduces reward for saving, so consumption increases
• Savings: Any disposable income that is not spent
• Marginal Propensity to consume: Proportion of additional income that is spent on consumption
• Benefit of increasing consumption: Higher Aggregate demand
• Benefit of increasing consumption: Faster short run economic growth
• Benefit of increasing consumption: Decreasing unemployment
• Benefit of increasing consumption: Higher business confidence
• Benefit of increasing consumption: Reduced spare capacity
• Cost of increasing consumption: Inflation pressure
• Cost of increasing consumption: Economic growth may occur too quickly
• Cost of increasing consumption: Environmental costs