• Disposable income?is the money that?households?have left from their?salary/wages?after they have paid their?taxes?and have received any?transfer payments/benefits
  • If?taxes increase, then?disposable income decreases?- and vice versa
  • If?wages fall,?then?disposable income decreases?- and vice versa
  • If?transfer payments?to a?household?increase (e.g. Unemployment benefits), then?disposable income?increases - and vice versa
• Consumption increases?as disposable income increases
• Consumption decreases?as disposable income decreases

• Disposable income?can either be?saved?or?spent?on goods/services (consumption)
  • When?savings decrease,?consumption?usually?increases
  • When?savings increase,?consumption?usually?decreases
• The?household savings ratio?calculates household savings as a?proportion?of household income
  • This percentage is often?low?when an economy is?booming?and full of confidence - and vice versa
  • During?lockdown in 2020?this ratio reached a record high in the UK of around 25%

Changes to Interest Rates

• Interest rates?are set by the government's?Central Bank
  • Changes to the?base rate?cause commercial banks to change the?lending and saving rates?they offer customers
• A?change in interest rates?will change the level of?consumer spending and savings
  • If interest rates increase there is a?greater incentive to save
    • More saving = less consumption
  • If interest rates increase, the?monthly repayment?on any loan or?mortgage?increases
    • Higher loan repayments = less consumption

Changes to Consumer Confidence

• The stronger the economy, the higher consumer?confidence
  • Consumers?feel secure?in their jobs and are confident of receiving?regular salary payments
    • Consumption increases and saving decreases
• In a weakening or?recessionary economy, consumer?confidence falls
  • Consumers?feel less secure?in their jobs
    • Consumption decreases and saving increases

Changes to Wealth

• If?consumer wealth?increases, then consumption usually?increases
  • Rising property prices?or share prices give?consumers confidence?to borrow?more money
    • Increased borrowing = increased consumption