Question

Take three causes/determinants of Consumption and explain how they would have to react/behave to lead to increased consumer spending. Now take three causes/determinants of Investment and explain how they would have to react/behave to lead to increased investment spending. Use real world examples to help illustrate each of your answers. (6 total examples)

Answer 1

There are economic factors and non-economic factors determine the consumption functions.

• Income- higher the income higher the consumption goods.
• Fiscal policy of the government especially expansionary fiscal policy.
• the lower interest rate on consumer credit

These factors increase the consumer spending in the economy and lead to higher consumption in the economy and futhure directly or indirectly affects the investment.

Greater spending on the consumption leads more gods to be required to produce hence due to higher income, expansionary, fiscal policy consumer credit leads investment in the economy by raising the price profit will increase and attract more investment in the economy.