C24,C25 Consumption and Investment Flashcards

1
Q

What is consumption?

A

Spending on consumer goods or services over a period of time

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2
Q

What are durable goods?

A

A good that is bought at 1 specific time but continues to add value (cars)

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3
Q

What are non-durable goods?

A

A good that is bought and consumed at one specific time

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4
Q

What is saving?

A

What is not spent out of income

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5
Q

What is disposable income?

A

Income including state benefits after taxes

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6
Q

What is the consumption function?

A

How factors change the amount that is being consumed

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7
Q

How can you measure the change in willingness to consume?

A

MPC = change in consumption / change in income

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8
Q

How can you measure the average amount spent on consumption?

A

APC (average propensity to consume) = consumption / income

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9
Q

What is the relationship between APC and income?

A

As income increases, households tend to save more so the APC decreases

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10
Q

What are the determinants of consumption?

A

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)

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11
Q

What is MPS?

A

change in saving/ change in income

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12
Q

What is APS?

A

Saving / income

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13
Q

What is investment?

A

Money spent by firms of assets that they use to produce goods

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14
Q

What is gross investment?

A

All investment spending

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15
Q

What is net investment?

A

Investment spending that increases productive capacity

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16
Q

What factors effect investment?

A

Risk
Government incentives (adding subsidies of taxes)
Interest rates and access to credit
Technological advances
Business confidence