1. Discuss the process of how more consumer spending results in more jobs.

Consumer spending numbers are watched closely by economist as a predictor of future economic activity. Since the household sector of the economy makes up about two-thirds of all economic activity, a shift in consumer sentiment could have major impacts on the economy. When consumer spending is strong business are able to hire more workers to keep production at the level demanded by consumers. As wages rise in the U.S. much of the new spending is on services such as restaurants, bars and department stores. This is exactly what was reported in the article.

2. Draw an aggregate supply-aggregate demand diagram and show what you would expect to happen as consumer spending increases. Label your beginning and ending positions carefully and explain the result.

Your students should draw an aggregate supply-aggregate demand curve and label the beginning price level and output level. Since consumption spending is one of the determinants of demand, explain that as consumer spending increases it will shift the aggregate demand curve to the right. If nothing happens to change the aggregate supply curve the new intersection of the original aggregate supply with the new aggregate demand will indicate a higher price level and a higher level of output. They should then explain that that higher level of output is achieved only after hiring more workers. Thus, the increased consumer spending has resulted in job growth.

Multiple Choice/True False Questions