Question

Discuss the forward-looking theories of consumer behaviour. What are the effects of the income support payment announced by the governments in the government Budget? What is the major source of instability in consumption spending?

20 marks

Answer 1

The forward looking theory of consumption means the assumption of most people preferring to keep the consumption steady from the year of consumption and then year to year. It describes the process that how the consumers allocate incomes amongst different goods and services to maximize the utility.
Income support payment announced by the government in government budget is a regular payment which helps everyone live with the cost. Reforms of the income support payment may have effect on decreasing barriers to the work for the mature age job workers. Income support payments are majorly aimed on alleviating poverty, various qualifications required and payment rates attached to these various payments reflect the judgements about the recipients assumed relationship for the labor force.
When people start spending less on the goods and services, the businesses invests lesser than the desired amount. Fewer factories are build, fewer employees are hired. In this slow economy, decreased amount of money is earned, so amount paid in taxes becomes lesser, which ultimately means government spending can too go down, which directly affects the growth of the economy.