The document discusses factors influencing consumer spending and investment in the economy, including consumer wealth, expectations, taxes, and interest rates. It highlights how an increase in wealth can boost aggregate demand, while rising taxes and interest rates can reduce consumption and investment. Additionally, it addresses the effects of government expenditure and exchange rates on net exports and overall economic demand.

1. Quuen'sCollegeBusinessStudies2012
Consumer Expenditure
An increase in
consumer’s wealth
will shift the
aggregate demand
curve to the right. For
example, a boom in
the stock market will
increase the value of
assets.
Consumer’s Wealth Consumer’s Expectations
If consumers expect
their real incomes to
increase in the
future, current
consumption will
increase.
Expectations about
inflation as well will
also affect current
consumption.

2. Quuen'sCollegeBusinessStudies2012
Consumer Expenditure
Direct Taxes Consumer Indebtedness
Income taxes directly
affect a consumers’
income. An increase in
taxes reduces
disposable incomes
lowering consumption
and aggregate demand.
Consumers with high
levels of debt may have
to spend a large portion
of their income on
interest payments. This
will therefore reduce
current consumption.

3. Quuen'sCollegeBusinessStudies2012
Investment Expenditure
Interest Rates Business Expectations
There is a negative relationship
between investment and interest
as they represent the cost of
borrowing. Therefore an
increase in interest rates will
lower investment expenditure.
If firms perceive a fall off in
aggregate spending, they will
usually cut investment spending.
Expectations usually result in
self-fulfilling prophecies.
If business expect high returns
from the investment even if
interest rates are high, the
project is normally pursued
(e>ir).

4. Quuen'sCollegeBusinessStudies2012
Investment Expenditure
Business Taxes Excess Capacity
Business taxes directly affect
after tax profits. Business
usually use after tax profits to
determine the return on an
investment. Therefore an
increase in business tax will
lower the profitability of an
investment making it more
undesirable.
If firms have excess capacity
in other words the ability to
increase the scale of
production without adding
additional capital goods. This
will result in reduce investment
spending. Even if a project is
desirable on the basis of
return, there will be no need
for the firm to buy additional
capital goods.

5. Quuen'sCollegeBusinessStudies2012
Government Expenditure
This is determined by the residing political party,
There are no significant factors that directly
affect government expenditure as each
government may have a varying economic
policies.
The budget and estimates are deliberated by
the economic factions of the party and
presentations are made to the public.
However, an increase in government
expenditure will increase aggregate demand
spending in the economy.

6. Quuen'sCollegeBusinessStudies2012
Net Export Expenditure
Barbados $2.00 = US $1
Trinidad and Tobago $6.00 =
US$1
Guyana $200 = US $1
Jamaican $120 = US $1
Eastern Caribbean $2.70 = US
$1
Cayman $1.25 = US $1
Haiti $40.35 = US $1
Bermuda $1 = US $1
Surinam $2.95 = US $1
There is a negative
relationship between
exchange rates and net
exports.
If Barbados’ exchange rate
depreciates to
Bds$3=US$1, domestic
exports will rise and imports
will fall. This will increase
net export spending.
Exchange Rates

7. Quuen'sCollegeBusinessStudies2012
Net Export Expenditure
Relative Prices Relative Income
Higher domestic prices while
international prices remain
constant will increase imports
and decrease exports. This
will decrease net export
expenditure and shift the AD
curve to the left.
Domestic income level
increases while income levels
abroad remain constant will
increase imports. Higher
imports lower net export
spending and reduce
aggregate demand.
If income levels abroad
increase this will increase
domestic exports, increase net
exports and shift AD to the
right,