An important role is also played by expectations on future income especially if short-term credible events are concerned. An immediate impact is imposed by consumption on GDP. GDP is raised by a similar amount by an increase in consumption. Moreover, the increase in income will be followed by a further rise in consumption since one of the important determinants of consumption is current income (GDP). A positive feedback loop is triggered by income and consumption. Savings will be reduced if there is an autonomous increase in consumption at the same income level. However, with a positive impact on future saving an increase of income level will be implied by the positive loop, known as the Keynesian multiplier.
Imports will be immediately pushed by an increase in consumption if directed to services and goods produced abroad. However, due to the consumption of domestic products that require semi-manufactured goods, energy, and foreign raw materials, a similar indirect effect will result. In the case of imported goods, the revenue generated from import duties as well as the revenue of the State will be boosted due to an increase of consumption as consumption is separately taxed by the States. Through income taxes, the revenue of the State will also be provided through the growth mechanism of income-consumption. However, the new investment may get induced by an increase in consumption as the firms decide to invest on the basis of forecasted future demand.
With positive effects on profits, the production capacity utilization will be raised by soaring consumption. For funding investment both through loans and profits, it will also improve the financial conditions and will improve expectations on future demand. Export may get decreased due to an increase in domestic consumption if the 2nd best solution for domestic firm exports. Faster adoption of new products may be led due to consumer dissatisfaction with current products, therefore, intertwining the entire new cycle of product development.
Except in a few deep recessions in the last fifty years, consumption has always grown in western countries. In comparison to the growth of net exports or the rise in investments, its growth has always been smoother. At a fairly steady pace services have grown systematically in particular. The business cycle has often been mirrored by non-durables and the fluctuations in GDP have always been over-shot by durables. In the future, sustainable lifestyles based on the satisfaction of basic needs, like, carbon footprint off-setting, dematerialization and green consumer goods will be more relevant.
