Question

__________ is not a determinant of consumer expenditures. Select the correct answer below:

a) Wealth
b) Disposable income
c) Interest rates
d) Expected future income

Answer 1

Interest rates are not a direct determinant of consumer expenditures; instead, disposable income, wealth, and expected future income are primary factors influencing how much consumers spend.

Step-by-step explanation:

The correct answer to the question is interest rates. When we consider the determinants of consumer expenditures, we look at factors that directly impact the amount of money consumers are willing and able to spend on goods and services. Major determinants include disposable income (the income available to consumers after paying taxes), wealth, and expected future income.

Disposable income is crucial because it represents the funds consumers have at their immediate disposal. Wealth or an increase in wealth can prompt consumers to spend more and save less, influenced by perceptions of financial security. Expected future income affects consumption decisions based on consumers' optimism or pessimism about their future financial state. Conversely, interest rates are not a direct determinant of consumer expenditure, rather they influence the cost of borrowing which can in turn impact consumer spending, but they are not a primary factor in the immediate decision to consume.