Economics

Study Notes

Consumer Spending

Last updated 27 Oct 2020

Consumption is spending by households on goods & services. Consumer spending is biggest single component of aggregate demand in the UK.

Changes in real disposable incomes (Yd) for households e.g. from changes in direct taxes and state welfare payments
Level of and changes in employment & job security
Availability and cost of consumer credit – affects willingness to borrow
Cost of servicing a mortgage (i.e. monthly interest payments)
Changes in asset prices such as property and shares – possible wealth effect
Expectations of future price changes e.g. if there is persistent price deflation
General state of consumer confidence / pessimism (“animal spirits”)

Base interest rate: Set by the Bank of England, it is the rate of interest used by commercial banks as the basis for their own lending rates.
Consumer confidence: Expectations about the future including interest rates, prices, incomes and jobs.
Disposable income: Income after the deduction of direct taxes and addition of welfare benefits.
FTSE-100 Index: The FTSE-100 tracks share-prices of the 100 largest companies listed on the London Stock Exchange.
Savings ratio: The ratio of personal saving to household disposable income (usually expressed as a percentage).