Consumer Expenditure

Question 1

Define: marginal propensity to consume

Answer 1

The proportion of additional income devoted to consumption

Question 2

Define: marginal propensity to save

Answer 2

The proportion of additional income devoted to saving

Question 3

How to calculate: Average propensity to consume (APC)

Answer 3

Household consumption / household income

Question 4

How to calculate: Marginal propensity to save (mps)

Answer 4

1 - MPC

Question 5

Do people on lower incomes have a higher or lower propensity to save

Answer 5

Higher - Can’t afford to save

Question 6

Average propensity to consume compared to marginal propensity to consume

Answer 6

Average = the proportion of income that households devote to consumption
Marginal = The ADDITIONAL income devoted consumption

Question 7

Factors that effect consumer expenditure

Answer 7

Income
Consumer confidence
Changes in household wealth
Inflation
Interest rates

Question 8

How does income effect consumer expenditure

Answer 8

Higher income = higher consumer expenditure

Question 9

How does consumer confidence effect consumer expenditure

Answer 9

Higher consumer confidence = higher consumer expenditure

Question 10

How does household wealth effect consumer expenditure

Answer 10

Higher household wealth = higher consumer expenditure

Question 11

How does inflation effect consumer expenditure

Answer 11

High rate of inflation = higher income = higher consumer expenditure

Question 12

How do interest rates effect consumer expenditure

Answer 12

High interest rates = increased cost of borrowing = increased return on savings = decrease in consumer expenditure