2.2.2: Consumption (C) Flashcards
What is disposable income?
Income after taxes and benefits.
Disposable income is the most ________ factor in determining the level of ________.
Important, consumption.
What is the Marginal Propensity to Consume (MPC)?
Change In Consumption/Change In Disposable Income
(Change In C/Change In Y).
What are 4 factors affecting consumer spending?
-Real disposable income.
-Employment/job security.
-Household wealth.
-Consumer confidence.
What is savings?
The postponement of consumption.
What is consumption?
Buying of consumer goods/services.
What is the saving ratio?
The percentage of disposable income that is saved.
What does a high savings ratio indicate?
Low consumption and low AD.
What is the Marginal Propensity to Save (MPS)?
Change In Savings/Change In Disposable Income
(Change In S/Change In Y).
(1 - MPC).
What is the Average Propensity to Save (APS)?
Total Savings/Total Income
(S/Y).
What 3 factors influence consumer spending?
-Interest rates.
-Consumer confidence.
-Wealth effect.
How does interest rates affect consumer spending?
-Increases the cost of goods to consumers.
-Reduces consumption & encourages saving.
How does consumer confidence affect consumer spending?
High consumer confidence increases consumption.
How does the wealth effect affect consumer spending?
People with greater wealth tend to have greater levels of consumption (as their confidence is improved).
What are durable goods?
Goods that provide a stream of services over a period of time.
