CONSUMER SPENDING Flashcards
What is consumption
total spending by hh on g/s in econ
how are countries liek US and UK relevant to consumtion
consumption has a massive impact and is iimp part of AD
in UK what % of AD is consumption
66%
when AD shifts left or right , this independent of
the price level
what is the marginal propensity to consume
Willingness of hh to spend any extra income they earn
what phrase can we ue anytime AD is shifting
mu,tipleir effec
what are the 5 factors that can affect AD
Level of real disposable income
IR/Availability of Credit
Consumer Confidence
Asset Prices
Household Indebtness
Real means
adjusted for inflation
what is disposable income
income left after tax and national insurance paid available to be spent or saved as one wishes.
give exmaple of 3 ways consumption could increase relative ot elvel of real disposable income
income tax decreased ,
cuts in marginal rate of income tax
increases in tax free allowance
how would for example decrease in income tax affect real disposable income and AD
increases level of real disposable income
which will increase MPC
therefore increase level of consumption
When interest rates cut what happens
the cost of borrowing falls and ROR on savings fall
when IR cut and COB falls what does this increase
COB falls increases incentive for consumers to go borrow money as cheaper to do so and spend it on expensive items like cars , furniture , jewellery increasing consumption
increases incentive for consumers to go borrow money
how does COB falling increases incentive for consumers to go borrow money affect consumption
as cheaper to borrow and spend it on expensive items like cars , furniture , jewellery increasing consumption
Ror savings decreases as a reuslt of IR cut , explain impact this has on consumption
reduces incentive to save and any income generated may go into consumption as a result increasing C
many uk hh have
mortgages to finance buying a house
mortgages have what two things q
monthly repayments
lots of mortgages are varaible or tracker aid mortgaes
with the variable and tracker aid mortgages and loans/debt in gfenral where do IR come from
base rate from bank of england
in terms of mortgaes and debt waht happens if IR cut
monthly theres more disposable income to be able to spend increasing C ~~
explain how availabilty of credit can affect consumption
If low this can reduce impact of lower IR borrowing - as banks LESS willing to lend if its low
so there wont be the spending on luxury items so we wont see an increase in consumption
if theres high consumer confidence
theyll have higher MPC
what can affect consumer confidence
Job prospects and level of unemployment in econ
give example of how job prospects can increase consumer confidence and consumption
If people expect gonna get promo soon -
job prosp strong -
theyll more likely to spend money
MPc will be higher
explain how Low unemp can increase consumption -
indi feel bullish in job ,
confident in job prospects therefore more likely to spend money
and not have a reason to save money in that time , e.g not gonna loose job so dodnt need to have something to fall back on
asset prices link to
wealth and how wealthy consumers feel
the welathier consumers feel
more likely to spend money
SO higher MPC
Give examples of assets
houses
bonds
shares
