Answer to Question #134795 in Macroeconomics for Thilivhali

Question

4.5 Identify any three non-income determinants of consumption

Answer 1

Non-Income Determinants of Consumption

Despite income being the primary determinant of consumption, several non-income determinants of consumption do exist. They include;

1. Consumer expectations,
2. Cost and availability of consumer credit, and
3. Households’ wealth.

Consumer expectations are directly tied to consumer spending behaviors. For instance, whenever consumers speculate or expect prices to increase over the next month, they will tend to buy now or in the present moment. Availability, as well as, cost of consumer credit tends to influence the level of consumption irrespective of one’s income. Easy access to cheap consumer credit spurs a high level of consumer spending that is not tied to income. On the contrary, high-interest rates and difficulties in accessing consumer loans, leading to low consumer expenditure, at any given level of total income or GDP. Lastly, households’ wealth comprises savings in form of cash, real estate, stocks and bonds, and bank accounts. Household wealth implies that even without income, households can withdraw their saved cash or liquidate their wealth or assets, thus permitting households to spend more on consumption regardless of their income.