29) Consumption and saving

Question 1

What is GDP(AD)?

Answer 1

GDP = AD = C + I + G + (X-M)

Question 2

What factors determine consumption?

Answer 2

1) Disposable income
2) Interest rates
3) Consumer confidence
4) The availability of credit
5) The level of debt held
6) Inflation
7) Composition of households (younger and older tend to spend more of their income)
8) Wealth affects

Question 3

What is APC?

Answer 3

Average propensity to consume is the amount of total income that an individual spends, on average, on consumption

Question 4

What is the APC formula?

Answer 4

Average propensity to consume = Total consumption / Total income

Question 5

What is MPC?

Answer 5

Marginal propensity to consume is how much extra is spent on consumption as a result of receiving one extra £ in income

Question 6

What is the MPC formula?

Answer 6

Marginal propensity to consume = Change in consumption / Change in income

Question 7

What is APS?

Answer 7

Average propensity to save is the amount of total income that an individual saves

Question 8

What is the APS formula?

Answer 8

Average propensity to save = Total saving / Total income

Question 9

What is MPS?

Answer 9

The marginal propensity to save is the amount of one extra £ in income that the individual decides to save

Question 10

What is the MPS formula?

Answer 10

Marginal propensity to save = Change in saving / Change in income

Question 11

What is disposable income?

Answer 11

Household income over a period of time including state benefits, less direct taxes

Question 12

What is wealth effect?

Answer 12

The change in consumption following a change in wealth

Question 13

What are non-durable goods?

Answer 13

Goods which are consumed almost immediately e.g. ice cream

Question 14

What are durable goods?

Answer 14

Goods which are consumed over a long period of time e.g. TV, car