Consumer spending

Question 1

Define consumer spending

Answer 1

Spending by individuals or households on goods and services to gain utility.

Question 2

What is disposable income

Answer 2

Income after tax has been deducted. Consumer spending and disposable income are positively related.

Question 3

What is the equation for Marginal propensity to consume

Answer 3

Change in consumption/Change in income

Question 4

How does changes in consumer confidence affect consumption

Answer 4

If consumers feel like their jobs are secure, that their incomes are rising and that the economy is performing well. This feeling of confidence can make them more likely to borrow/spend.

Question 5

How does changes in interest rates affect consumption.

Answer 5

Low interest rates mean that credit is cheap and this will encourage individuals to borrow and spend (Increase in consumption). Higher interest rates means that there is a higher intensive to save and spend less (decreasing consumption)

Question 6

How does the availability of credit affect consumption.

Answer 6

Higher price of credit - lower consumption.
Some people cannot get credit which will also lower consumption.