What effect does an increase in consumption have on GDP?

An increase in consumption has a direct positive effect on GDP because consumption is a major component of aggregate demand. In the context of the GDP formula (GDP = C + I + G + (X - M), where C is consumption, I is investment, G is government spending, and (X - M) is net exports), any increase in consumption (C) leads to an increase in the overall GDP.

When consumers increase their spending on goods and services, businesses respond by producing more to meet this demand. This heightened production can lead to higher employment and income levels, which can further stimulate additional consumption, creating a cycle of economic growth. Therefore, an increase in consumption is an essential driver of GDP growth, reflecting a healthier economic environment where individuals feel confident and willing to spend more.

The other options do not accurately capture the relationship between consumption and GDP. For instance, a decrease in GDP would suggest a contraction in the economy, which typically occurs during recessions or downturns when consumption falls. Stating that consumption has no effect on GDP overlooks its fundamental role in economic activity. Lastly, the idea that increased consumption creates inflationary pressure focuses on the consequences of consumption rather than its direct impact on GDP itself. While increased consumption can contribute to inflation