CONSUMER SPENDING

Question 1

What is consumption

Answer 1

total spending by hh on g/s in econ

Question 2

how are countries liek US and UK relevant to consumtion

Answer 2

consumption has a massive impact and is iimp part of AD

Question 3

in UK what % of AD is consumption

Answer 3

66%

Question 4

when AD shifts left or right , this independent of

Answer 4

the price level

Question 5

what is the marginal propensity to consume

Answer 5

Willingness of hh to spend any extra income they earn

Question 6

what phrase can we ue anytime AD is shifting

Answer 6

mu,tipleir effec

Question 7

what are the 5 factors that can affect AD

Answer 7

Level of real disposable income

IR/Availability of Credit

Consumer Confidence

Asset Prices

Household Indebtness

Question 8

Real means

Answer 8

adjusted for inflation

Question 9

what is disposable income

Answer 9

income left after tax and national insurance paid available to be spent or saved as one wishes.

Question 10

give exmaple of 3 ways consumption could increase relative ot elvel of real disposable income

Answer 10

income tax decreased ,

cuts in marginal rate of income tax

increases in tax free allowance

Question 11

how would for example decrease in income tax affect real disposable income and AD

Answer 11

increases level of real disposable income
which will increase MPC
therefore increase level of consumption

Question 12

When interest rates cut what happens

Answer 12

the cost of borrowing falls and ROR on savings fall

Question 13

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

Answer 13

increases incentive for consumers to go borrow money

Question 14

how does COB falling increases incentive for consumers to go borrow money affect consumption

Answer 14

as cheaper to borrow and spend it on expensive items like cars , furniture , jewellery increasing consumption

Question 15

Ror savings decreases as a reuslt of IR cut , explain impact this has on consumption

Answer 15

reduces incentive to save and any income generated may go into consumption as a result increasing C

Question 16

many uk hh have

Answer 16

mortgages to finance buying a house

Question 17

mortgages have what two things q

Answer 17

monthly repayments

lots of mortgages are varaible or tracker aid mortgaes

Question 18

with the variable and tracker aid mortgages and loans/debt in gfenral where do IR come from

Answer 18

base rate from bank of england

Question 19

in terms of mortgaes and debt waht happens if IR cut

Answer 19

monthly theres more disposable income to be able to spend increasing C ~~

Question 20

explain how availabilty of credit can affect consumption

Answer 20

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

Question 21

if theres high consumer confidence

Answer 21

theyll have higher MPC

Question 22

what can affect consumer confidence

Answer 22

Job prospects and level of unemployment in econ

Question 23

give example of how job prospects can increase consumer confidence and consumption

Answer 23

If people expect gonna get promo soon -

job prosp strong -

theyll more likely to spend money

MPc will be higher

Question 24

explain how Low unemp can increase consumption -

Answer 24

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

Question 25

asset prices link to

Answer 25

wealth and how wealthy consumers feel

Question 26

the welathier consumers feel

Answer 26

more likely to spend money

SO higher MPC

Question 27

Give examples of assets

Answer 27

houses

bonds

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