Question

How do you think changes in consumer confidence can impact spending by consumers?

Answer 1

If consumers are optimistic about the future economic prospects, consumer confidence index will increase, and consumers will expect higher income. Marginal propensity to consume remaining unchanged, higher consumer income will increase consumption expenditure. On the other hand, if consumers are pessimistic about the future economic prospects, consumer confidence index will decrease, and consumers will expect their income to fall. Marginal propensity to consume remaining unchanged, lower expected consumer income will decrease consumption expenditure.