2.2.2: Consumption Flashcards
What is consumption?
Consumption is spending on consumer goods and services over a period of time.
What is disposable income?
Disposable income (Y) is the money consumers have left to spend, after taxes.
What is MPC?
-Marginal Propensity to Consume: Refers to how much a consumer changes their spending following a change in income
What is the MPC formula?
Change in Consumption/ Change in Income
What is the APC?
Average Propensity to Consume, the average amount spent on consumption out of total income.
What is the formula of APC?
Total consumption/ total income
What is MPS?
Marginal Propensity to Save which is how much of an increase income is saved.
What is the formula for MPS?
Change in savings/ change in income
How do interest rates affect consumer spending?
-High interest rates reduce consumption as the consumer will have to pay more money back to the bank.
-High interest rates also decreases the value of shares so consumers can experience the negative wealth effect.
How does consumer confidence affect consumption?
If consumer confidence is high, there will be increased/ high consumption and vice versa
How does the distribution of wealth affect consumption?
If money is moved from the rich to the poor, consumption is less likely to increase as the poor are likely to have a higher MPS.
