Question

What is more appropriate to help stimulate economic growth; consumption or investment demand? What sector do you think our economy should look at stimulating, consumers or businesses? Explain your reasoning using the concepts of aggregate demand and supply.

Answer 1

Investment is more important to stimulate economic growth than consumption. Consumption depends on the level of disposable income and disposable income is dependent on the level of investment. Investment means expenditure on capital goods, office space, new business which would increase employment levels. When the employment level increases the level of disposable income in hand increases which increases the demand for goods and hence the consumption. So when consumption increases price increases and firms supply more goods.

Consumer spending accounts for 70 percent of the economy and increase in consumer spending would stimulate the economic growth than other