2.2.2 Consumption (C)

Question 1

What is disposable income?

Answer 1

Disposable income is the money that households have left from their salary/wages after they have paid their taxes and have received any transfer payments/benefits.

Question 2

What can cause a change in disposable income?

Answer 2

/If taxes increase, then disposable income decreases - and vice versa
/If wages fall, then disposable income decreases - and vice versa
/If transfer payments to a household increase (e.g. Unemployment benefits), then disposable income increases - and vice versa

Question 3

What is the relationship between consumption and disposable income?

Answer 3

Consumption increases as disposable income increases. Consumption decreases as disposable income decreases.

Question 4

What is the relationship between saving and consumption?

Answer 4

When savings decrease, consumption usually increases. When savings increase, consumption usually decreases.

Question 5

What are other influences on consumer spending?

Answer 5

/Changes to interest rates
/Changes to consumer confidence
/Changes to wealth

Question 6

Explain how changes to interest rates can effect consumer spending?

Answer 6

A change in interest rates will change the level of consumer spending and savings. If interest rates increase there is a greater incentive to save. More saving = less consumption.

Question 7

Explain how changes to consumer confidence can effect consumer spending?

Answer 7

The stronger the economy, the higher consumer confidence. Consumers feel secure in their jobs and are confident of receiving regular salary payments. Consumption increases and saving decreases.

Question 8

Explain how changes to wealth can effect consumer spending?

Answer 8

If consumer wealth increases, then consumption usually increases. Rising property prices or share prices give consumers confidence to borrow more money. Increased borrowing = increased consumption.