Consumption
Definition. Consumption is the total spending by households on goods and services to satisfy their current wants, and it is normally the largest single component of aggregate demand in an economy. It depends on disposable income, interest rates, household wealth, expectations and the availability of credit.
A cut in interest rates tends to raise consumption by lowering the cost of borrowing and reducing the reward for saving. This channel is central to how monetary policy influences aggregate demand.
This term belongs to Monetary Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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