With reference to the chart, which one of the following is true? Average UK house prices: A fell in August 2020 B fell in November 2018 C rose the fastest in May 2021 D stayed constant in 2018 With reference to the chart on the previous page, explain the likely impact of an increase in average house prices on UK consumption. - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 2

An increase in average house prices can significantly impact UK consumption through several channels:

1. Wealth Effect: As homeowners see an increase in their property values, they perceive themselves as wealthier. This can prompt them to increase their spending, especially on non-essential goods and services.

2. Consumer Confidence: Higher house prices often lead to greater consumer confidence. When people feel secure in their financial situation due to increasing asset values, they are more likely to engage in spending, thereby boosting consumption.

3. Mortgage Equity Withdrawal: Homeowners may choose to withdraw equity from their homes to finance larger purchases, such as home improvements or consumer goods. This withdrawal injects more money into the economy, increasing overall consumption.

4. Reduced Savings: As confidence grows, consumers may also reduce their savings rates, opting instead to spend more. This increased consumption can further stimulate economic growth.

In conclusion, the rise in average house prices generally leads to higher consumer spending, contributing positively to the economy.