ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Decreased Consumer Spending: Unemployed workers have less real disposable income, which can result in decreased consumer spending and a reduction in aggregate demand. This in turn can cause a fall in planned investment spending by firms increasing the risk of a deeper recession.

Detailed explanation-2: -Unemployment adversely affects the disposable income of families, erodes purchasing power, diminishes employee morale, and reduces an economy’s output.

Detailed explanation-3: -Even a small downturn in consumer spending damages the economy. As it drops off, economic growth slows. Prices drop, creating deflation. If slow consumer spending continues, the economy contracts.

Detailed explanation-4: -Higher incomes, lower interest rates, increasing wealth, and composition of wealth (liquid versus illiquid assets) may lead to increased consumer spending. Additionally, the prevalence of consumer credit and the ability of consumers to leverage housing wealth can also precipitate increased consumer spending.

Detailed explanation-5: -consumption function, in economics, the relationship between consumer spending and the various factors determining it. At the household or family level, these factors may include income, wealth, expectations about the level and riskiness of future income or wealth, interest rates, age, education, and family size.