Answer to Question #135925 in Macroeconomics for lebo

Question

Identify any three non‐income determinants of consumption

Answer 1

Non-income Determinants of Consumption

        Income remains a significant determinant of consumption. However, several other non-income determinants of consumption do exist. These factors include;

1. Availability and cost of consumer credit

The availability and cost of consumer credit facilities are two key factors that influence the level of consumption regardless of an individual’s level of income. 

Ease access to cheap consumer loans leads to a high level of consumer spending that is not dictated by one’s income. On the other hand, a high-interest rates regime marked by difficulties in accessing consumer credit results in low consumer expenditure, at any given level of total income or national output.

2. Consumer expectations

Consumer expectations have a direct correlation with consumer spending behaviors. For example, in instances where consumers speculate or expect a rise in prices in the future, say next month, they will tend to buy now when prices are relatively low.

3. Households’ wealth or savings

The wealth of a household includes its savings, which may take the form of cash, treasury bills and bonds, real estate properties, and bank accounts. Household wealth implies that even without income, households can withdraw their savings or liquidate their wealth or assets, raising cash that allows them to spend on consumption even without considering their income.