Chapter 6, Problem 26AA

(a)

To determine

To analyze: effect of fall in consumer confidence according to the cartoon given in the question.

Explanation of Solution

Consumer confidence is an indicator in economics which is used basically to compute the level of confidence of the consumer regarding overall state of economy and their financial situation.

When the consumer confidence falls, they are more reluctant to invest in economic activity due to which the economy slows down and start moving toward recession. According to the cartoon given in the question, due to consumer falling confidence, they are spending less as a result; the economic health is under risk.

(b)

To determine

To analyze: The effect of consumer confidence on the saving rate.

Explanation of Solution

Saving rate can be defined as the proportion of overall income left after consumption. Or the portion of income, consumers or households keeps aside instead of consuming.

There is a negative association between the consumer’s confidence and the saving rate. It means that if the consumer’s confidence will be less, they will be unwilling to invest money due to which the savings will rise and vice versa.

(c)

To determine

To analyze: The association between consumer’s confidence and savings.

Explanation of Solution

Saving rate can be defined as the proportion of overall income left after consumption. Or the portion of income, consumers or households keeps aside instead of consuming.

Lack of confidence demotivates consumers as they think that they will lose their money or face loss if they try to invest it. So, they save more. Therefore, there is a negative association between the consumer’s confidence and the saving rate.