Unemployment/Consumer Confidence/Uncertainty
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Rising unemployment, or threat of being fired, raises precautionary savings & reduces current consumption.  Conversely, fall in unemp boost consumer confidence & increases spending.  Δs in unemp also affects real factor incomes earned by those in employment.  If unemp falling quickly, growth of wages & earnings accelerates, boosting spending power of people in work.  Rising unempl in a recession causes slowdown in income growth & encourages consumers to rein back on spending plans.  (In economic slowdown – PIH & LCH suggest that savings ratio falls – but in the early 1990s it actually went up…- so that experience goes against the theories). 

Other Notes in this Category

1. Access to credit / Financial Deregulation
2. Consumption
3. Consumption and Saving Exam Questions
4. Determinants of Consumption
5. Inflation
6. Interest Rates and Monetary Policy
7. Key Points
8. Other Theories of the Consumption Function
9. Problems with Consumption Functon
10. Unemployment/Consumer Confidence/Uncertainty
11. Wealth Effect – Asset Prices, Debt Burden, and Windfall Gains

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