DETERMINANTS

OF SPENDING
 • Prepared by
NIKKA M. LODRONIO
11-GAS C
FILL IN THE BLANKS
WITH MISSING LETTER
L E
V E
L OF S V
A NGS
I
L E L OF N A
V E I N
T O AL
INCOME
EXPECT AT I ON S
 U E P O M N
UNEMPLOYMENT
RRATES
T S OF INCOME
I CO E TAX
T X

IN
INTEREST
E E T RATES
R T S
 THE Some extra spending is induced by changes in
CURRENT the current level of national income. As income
rise, customers tend to increase their spending
LEVEL on higher income elastic goods and services,
such as luxuries, holidays and leisure goods.
OF When income falls households may postpone
spending on these luxuries until income rise
NATIONAL again.

INCOME
 Spending and saving
are mutually
exclusive, which
means that if income
THE is fixed, any change
in household's

LEVEL savings will inversely

affect spending. Many
of determinants of
OF consumption have an
inverse effect on
SAVINGS saving.
 If households are
confident, and have
positive expectations
EXPECTATIONS about the future,
current spending can
rise. This can lead to
economic growth, and
re - enforce the
positive expectations.
UN
EM

Underemployment has two potential effects

on household spending. Firstly, the
unemployed spend less because of their
PL

lower personal income, and secondly,

OY

unemployment causes negative

expectations, even for those employed, and
M

this can act as a curb on spending and a

EN

stimulus to saving.
T
 RATES
OF INCOME Changes in tax can clearly affect disposable, post - tax
income, and hence affect household spending.
TAX

By altering the level of saving - a rise in interest rates will

stimulate more saving, and less spending By altering the cost
of funding existing debts such as mortgages and bank loans.
INTEREST
For example, a rise in interest rates will divert household RATES
funds towards the higher loan payments and away from
general spending.