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TSR Wiki > Study Help > Subjects and Revision > Revision Notes > Economics > Unemployment/Consumer Confidence/Uncertainty

Rising unemployment, or threat of being fired, raises precautionary savings and reduces current consumption. Conversely, fall in unemployment boost consumer confidence and increases spending. Changes in unemployment also affects real factor incomes earned by those in employment. If unemployment is falling quickly, growth of wages and earnings accelerates, boosting spending power of people in work. Rising unemployment in a recession causes slowdown in income growth and encourages consumers to rein back on spending plans. (In economic slowdown – PIH and LCH suggest that savings ratio falls – but in the early 1990s it actually went up so that experience goes against the theories).

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