A simple economics question I cannot seem to answer about consumption (1 Viewer)

[bawd]

Currently revising for my prelims and for some unknown reason, I cannot answer this simple question. It's from the Cambridge Preliminary Economics Textbook, Topic 2: Consumers and Business Markets, Chapter 4.2 Patterns of consumer spending and saving.

Q4. Explain why, as individuals increase their consumption, the level of consumption rises for the whole economy.

I'm presuming it should be a simple 3 - 4 line answer, without knowledge of later topics, but it's giving me a mindblock.

Edit:

Just found another question I cannot answer. I seem to be forgetting things from earlier topics.

This is from the same textbook and chapter as above. It's a table you have to complete (first two lines are done), and I can't figure out how to do it. I do know all the MPC/MPS and APC/APS relationships, though.

Y--------C-------S-------MPC-----APC-----MPS-----APS
0--------400
400-----640
800-----880
1200----1120
1600----1360

 

[karnage]

When consumers increase their demand for goods and services, in turn firms respond and meet their demand by producing them. To produce them firms in turn demand inputs for production e.g. raw products, labour blah blah blah blah

Thus the initial increase in individual consumption stimulates the economy, causing the level of consumption to rise for the whole economy.

 

[bling05]

Y--------C-------S-------MPC-----APC-----MPS-----APS
0--------400
400-----640
800-----880
1200----1120
1600----1360

This may not be right, but I'll have a punt.
Y = C - S

MPC = Change in consumption/Change in income

MPS = 1 - MPC

APC = Consumption/Income

APS = Savings/Income

 

[haiderr]

for the first question, the person above has answered correctly that if people increase spending, then firms produce more, n therefore require more labour and other factors of production --> increased employment --> increased spending money available to consumers and then they spend more and so on.

if u want to go one step ahead and talk about the multiplier (which is a yr 12 concept), you can say: when one person increases spending, then the person they paid will have extra money, who will in tern spend more, and give the next person extra money to spend etc etc. this is known as the multiplier effect.