2.2.2 Consumption

Question 1

Define Consumption

Answer 1

the amount spent by households on goods and services

Question 2

Define Disposable Income

Answer 2

is the income left after deductions of tax and

Question 3

Explain the relationship between Disposable Income and Consumption

Answer 3

the more disposable income means more spending/ consumption

Question 4

Explain the relationship between Savings and Consumption

Answer 4

the more one saves the less they consume

Question 5

How is the (Household) Savings Ratio calculated?

Answer 5

Average household savings/ average household disposable income

Question 6

What is the current Household Savings Ratio?

Answer 6

6.2%

Question 7

Give 3 reasons why interest rates and consumption are inversely related

Answer 7

• as interest rates go up consumption goes down
• saving becomes more attractive loans become less attractive
• individuals with variable mortgage rates see monthly disposable income increasing

Question 8

Explain the relationship between confidence and consumption

Answer 8

more consumer confidence their short medium and long term economic prospects, more likely to spend

Question 9

Define Wealth

Answer 9

measures the value of all the assets of with owned by a person

Question 10

Explain how changes in wealth may change consumption

Answer 10

individuals with higher levels of wealth tend to consume more as they can borrow funds against their assets