2.2.2 Consumption ✅

Question 1

What is consumption? Give two types of goods?

Answer 1

Total spending on goods and services.
Durables and nondurables.

Question 2

What is disposable income? What effects it?

Answer 2

Money left to spend after tax or benefits. Gov and wages.

Question 3

How does disposable income influence consumption?

Answer 3

• Most important factor (higher di more you spend).
• MPC (marginal propensity to consume). = proportion of new income you spend.
• APC (average propensity to consume). = total amount of income you spend

Question 4

How do you calculate mpc? When would mpc be over 1? What is most people’s mpc?

Answer 4

Change in consumption / change in income
Borrowed money to consume more.
Positive but bellow 1.

Question 5

How do you calculate APC? What is APC like in an industrial country?

Answer 5

Total consumption / total income
Below 1 as people save their money.

Question 6

What is saving and how do you calculate it?

Answer 6

Postponed consumption. (stocks shares)
% of disposable income not spent.

Question 7

Factors that can effect consumer spending?

Answer 7

• disposable income
• wealth
• market interest rate
• confidence in economy
• level of indeptness of households.

Question 8

What is the relationship between saving and spending on consumption?

Answer 8

Have the opposite effect.

Question 9

How do we see the effects of saving on income?

Answer 9

• MPS (marginal propensity to save)
• APS (average propensity to save)

Question 10

how can interest rates effect spending? However how may this not always be true?

Answer 10

• decrease in them will reduce borrowing cost.
• low interest rates reduce returns on saving incentivising not to save.
• reduction in amount of interest on existing loans will increase disposable income.
  (Increase in spending (consumption) and increase in AD).
  Low availability of credit as banks are less willing to give out loans.

Question 11

How does consumer confidence effect spending? What can effect confidence?

Answer 11

As consumer confidence increases so does their MPC.
- unemployment levels.
- job prospects (might get promoted soon).

Question 12

How does wealth effect effect spending?

Answer 12

• increases value of assets building financial confidence.
• selling assets can also increase disposable income.

Question 13

What can further the impact of the determinants on C?

Answer 13

The multiplier effect.