2.2.2 Consumption (C)

Question 1

What is real income?

Answer 1

Income adjusted for a change in the price level

Question 2

What is the average propensity to consume?

Answer 2

The proportion of income that households devote to consumption

Question 3

What is the MPC?

Answer 3

The proportion of additional income devoted to consumption

Question 4

What is the MPS?

Answer 4

The proportion of additional income devoted to saving

Question 5

If the MPS is 0.5, what is the MPC?

Answer 5

0.5

Question 6

An increase in the MPC would have what impact on consumption?

Answer 6

Consumption would increase

Question 7

What is the wealth effect?

Answer 7

Where changes in household wealth induces a change in consumer spending

Question 8

How does the wealth effect affect consumption?

Answer 8

If the value of an individuals assets increases, they will spend more due to the thinking they’re worth more than they are

Question 9

How does consumer confidence affect consumption?

Answer 9

If consumer confidence is high, they are likely to spend more due to feeling financially secure in the current economic climate. Thus, increasing consumption

Question 10

How do interest rates affect consumption?

Answer 10

Low interest rates promote spending, thus increasing consumption