Recently as the economy has improved, we have seen a jump in consumer confidence. How do changes in consumer wealth, consumer expectations interest rates, household debt, and taxes shift the consumption and savings function (as they relate to real GDP)?

GDP is given by

GDP = Y = C + I + G + X - M

Where

C is consumption

Consumption is given by

C = w + pY* - ix

Where

W = wealth of the consumer, so the wealthier the people the they consume, it is justified with fact that wealthy people spend money on luxuries goods.so higher wealth results in higher nominal GDP

i = interest rates

So when consumers expect interest rates to fall, then they start consuming more rather then saving because they won't get desired return on savings, and increase in consumption leads to increase in nominal GDP

x = household debt

As the interest rates goes down, the cost of borrowing becomes cheaper so people tend to borrow more for consumption so households debt repayments the current consumption.

Y* = disposable income = income (Y) - taxes(T)

So as we can see as thr tax burden decreases people either save that money or consume it however when the interest rates are falling, poeple prefer to consume this money than saving

We have seen the effact of these variables on nominal GDP. Now let us understand the effect on real, the on real GDP is as same as that in nominal one but with one fact that higher consumption leads to higher aggregate demand so if the economy doesn't have any supply bottleneck then real GDP will rise at the same pace as that of nominal GDP otherwise real GDP will rise at lowwr pace.