Aggregate Demand

The total demand for all goods and services within an economy in a given time period.

\(AD = C + I + G + (X-M)\)

C - Consumer spending (70% of AD in the UK)
I - Investment
G - Government spending
(X-M) - Exports minus imports (Negative in the UK)

Factors that cause consumer spending to rise or fall

  • Interest rate - The reward for saving and cost of borrowing

If the interest rate increases this will impact on consumer spending and cause it to decrease because people save more and borrow less.

Wealth

An accumulation of assets over time

Wealth can be made up various different components such as:

  • Property
  • Savings
  • Pension
  • Investment

If wealth increases, so will consumer spending.

Consumer Confidence

The degree of optimism consumers have about the current state of the econmy and their own financial situation.

When consumer confidence is high, this will mean more consumer spending.

Direct Tax

A fall in income tax will lead to an increase in disposible income for households, this will translate into an increase in consumer expenditure.