2.2.2- Consumption

Question 1

What is consumption

Answer 1

spending on g/s, durable and non durable

Question 2

Whats the equation for marginal propensity to consume

Answer 2

MPC= change in consumption/ change in income

Question 3

What are the factors effecting consumer spending

Answer 3

income, the wealth effect, inflation, interest rates, consumer confidence, taxation, credit

Question 4

What is incomes impact on consumption

Answer 4

when income rises households have more disposable income so consumption will increase

Question 5

What is the wealth effect impact on consumption

Answer 5

increases in physical and monetary wealth means people feel richer and are more confident to spend which will increase consumption

Question 6

What is inflation’s impact on consumption

Answer 6

causes MOVEMENT, erodes the value of money so consumers save more meaning reduced consumption, however people may bring forward their purchases

Question 7

What is interest rates impact on consumption

Answer 7

increases cost of credit, mortgage costs, reduction in stock prices, opportunity cost of saving all reduce consumption

Question 8

What is consumer confidence impact on consumption

Answer 8

hope for future income, employment prospects, low price levels increase consumption

Question 9

What is taxations impact on consumption

Answer 9

decreases disposable income and consumption

Question 10

What is credits impact on consumption

Answer 10

availability of credit will increase disposable income and consumption