C24,C25 Consumption and Investment Flashcards
What is consumption?
Spending on consumer goods or services over a period of time
What are durable goods?
A good that is bought at 1 specific time but continues to add value (cars)
What are non-durable goods?
A good that is bought and consumed at one specific time
What is saving?
What is not spent out of income
What is disposable income?
Income including state benefits after taxes
What is the consumption function?
How factors change the amount that is being consumed
How can you measure the change in willingness to consume?
MPC = change in consumption / change in income
How can you measure the average amount spent on consumption?
APC (average propensity to consume) = consumption / income
What is the relationship between APC and income?
As income increases, households tend to save more so the APC decreases
What are the determinants of consumption?
Interest rates (if increases C decreases)
Consumer Confidence
Wealth effect (increase in wealth –> increase in C)
Availability of credit
Inflation
Composition of households (i.e age)
What is MPS?
change in saving/ change in income
What is APS?
Saving / income
What is investment?
Money spent by firms of assets that they use to produce goods
What is gross investment?
All investment spending
What is net investment?
Investment spending that increases productive capacity
