The National Retail Federation has predicted that holiday spending will increase from 2.8% in 2010 to 3.8% this year to a record $469.1 billion. Needless to say, the increase in consumer spending is great news for any business owner! The increase in sales shows that consumers are not as weary to spend their hard earned money this year. What does that mean? The economy is improving. Consumer spending is an incredibly important driving force of the economy.
The prediction of the National Retail Federation has caused many businesses to reduce their prices in order to increase the aggregate demand for their goods and services. The concept is quite simple, when you reduce the price of any goods or services the quantity demanded by consumers will grow. For example, 'Store A' was selling a pair of jeans for $40 and they reduced their price by 50% to $20 dollars, consumers are more likely to purchase the item, therefore there is an increase in aggregate demand.
The holiday and new year seasons are a great time to decrease price in order to increase aggregate demand. The price change is not made just because everyone else is doing it. During this time businesses expect an increase in consumer spending because people are in the "spending" mood. There are various holidays where gift giving takes place during the season, including: Christmas, Hanukkah, Kwanzaa.
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