14 Consumption and savings

Question 1

What is the Uk’s biggest component of aggregate demand?

Answer 1

Consumption

Question 2

Give 3 of the 5 factors which affect consumer spending?

Answer 2

.Real disposable income
.Employment and disposable income
.Household wealth
.Expectations and sentiment
.Market interest rates

Question 3

How does real disposable income affect consumption

Answer 3

Real income will change as a result of above inflation pay rises and changes in taxation, people then spend this money and consumption will increase

Question 4

How does employment and job security affect consumer spending

Answer 4

Increases in employment will lead to higher incomes and more consumer spending
.Job security encourages consumers to borrow more money and purchase more durable goods such as cars and home improvements

Question 5

How does household wealth affect consumer spending

Answer 5

A sustained increase in house prices will increase personal wealth and spending as homeowners have more housing equity to borrow. Housing equity is the difference between the market value of a property and the outstanding mortgage loan

Question 6

Give the definition for consumption

Answer 6

Consumption is the spending on consumer services and goods

Question 7

What does it mean by the marginal propensity to consume?

Answer 7

This is the proportion of any extra income that you earn which you wish to spend

Question 8

What is your marginal propensity to save?

Answer 8

This is the proportion of any extra income that you wish to save