Question

Explain what variables are most influential in predicting your level of spending as a consumer? Do the variables differ for the purchase of durable goods (automobiles, major appliances, etc.) versus non-durable goods (food, clothing, entertainment, etc.)? Why do economists pay such close attention to the level of consumer spending?

Answer 1

One of the main factor that influence the spending of the consumer is the permanent income which is mainly stable. Permanent income includes current income from all the sources and the expected income from all sources.

The purchase of durable goods such as automobiles are mainly depends on the permanent income. However the spending for non durable goods such as food, clothing etc are mainly influenced by the current income of the consumer.

Economists pay more attention to the consumer spending because the spending activities of individuals determine the demand in an economy. Demand creates production and increase in production creates more employment and output in an economy. The increase in output and employment are the main source for economic development of a nation. The demand in an economy act as a catalyst for economic development. The decrease in demand creates the problem of depression in an economy which slow down the economic activities and thereby economic development.