Question

List the four non-income determinants of consumption and spending

Answer 1

Answer:- Four non-income determinant of consumption and spending are:-

1) The Price Level:- When the price level increase there is reduce of purchasing power of money holding cause household consume less and save more at each level of income. And When the price level is decrease there is increase in purchasing power of money holding.

2) Overall Wealth of Household:-A household's wealth consists of cash, bank accounts, shares and bonds, real estate, and different physical assets. Since households can finance consumption spending through depleting bank accounts or selling different kinds of wealth, an growth in wealth will allow households to spend greater at any given income level. For this reason, an growth in wealth will tend to shift the consumption function upward a decrease may have the opposite effect.

3) Expectation Of Income:- When the consumer are expected that their future income is going to increase, then they spend more and consume more in present. And When the consumer are expected that their future income is going to decrease then their present consumption is also decrease.

4) The Cost and availability of credit:- The cost and availability of credit is also one of the factor that influence the consumption spending. Most of us do not restrict our spending to our current income. If we actually need something, we borrow the cash to purchase it. But the value of borrowing money and the capacity to get consumer credit can change with the state of the economy. In general, the higher the interest rate and the more difficult it is to get customer loans, the much less consumption spending there might be at any level of total income.