Very adversly! Reduction in cosumer spending can bring by a recession. If people spend less, there will be less demand for goods and services. With demand, production will be decreased. When production is decreased, cost-cutting measures will be implemented. People are laid-off, the economy detracts. Consumer spending is the back-bone of capitalist mixed-economies such as that of the US.
In a typical 4-sector economy (picture a circular flow), you have sector 1: The Household, which provides the factors of production of Land, Labor, and Capital to sector 2: The Firm. In return, the firm provides the household with wages. These wages are then spent in the marketplace as consumption of durable and non-durable goods.
Some of the money spent is collected as tax revenue and goes straight to Sector 3: The Government. However, a consumer never spends their entire income in the marketplace due to their marginal propensity to save, so a proportion of household income is placed into sector 4: Financial Institutions.
Consumer spending therefore affects two major parts of a typical economy; if consumer spending is damaged, less tax revenue will be collected and less money will be placed into banks. This further affects the economy in two ways. Firstly, the government has less money to spend on projects such as infrastructure and education. Secondly, banks cannot readily lend funds to other consumers to allow them to make large purchases. In extreme cases if the government is unable to generate enough tax revenue over time they may default on their debt, and banks may collapse due to a lack of assets versus liabilities thus causing a panic and possible future bank runs.
With an increase in consumer spending, there will be an increase in demand for goods/services, and therefore an increase in production, which drives the economy up.
consumer spending
The factors that affect consumer spending are: Size of Income, Future Expenditures, and Social Influences.
The consumer is considered King, in a capitalist economy, because the spending of the consumer is what drives the entire economy. The more the consumer spends the better the economy becomes.
The effects of consumer spending are reflected in in overall economy. Increase in consumer spending will mean more profits for suppliers and this translates to more revenue to the government in form of taxes.
With an increase in consumer spending, there will be an increase in demand for goods/services, and therefore an increase in production, which drives the economy up.
consumer spending
The factors that affect consumer spending are: Size of Income, Future Expenditures, and Social Influences.
The consumer is considered King, in a capitalist economy, because the spending of the consumer is what drives the entire economy. The more the consumer spends the better the economy becomes.
The effects of consumer spending are reflected in in overall economy. Increase in consumer spending will mean more profits for suppliers and this translates to more revenue to the government in form of taxes.
Entrepreneurs help the economy by stimulating consumer spending and creating jobs.
it relies on a large amount of spending
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it improves with added consumer confidence and spending
ww3 is not a war
Wage freezes reduced consumer spending.
The recovery from the recession in the US economy has been slower than expected in 2014. This is because of a lack of consumer confidence reflected in the area of consumer spending.