Consumption Flashcards
What is Consumption
Spending on consumer goods and services
What are the factor incomes for the FOP
Labour - Wage + Bonus
Land - Rent
Capital - Interest
Enterprise - Profit
What is MPC
Marginal Propensity to Consume
Proportion of additional income that is spent
Change in spending following a change in income
Equation for MPC
Change in Consumption / Change in Income
What are Factors affecting consumer spending
Real Disposable Income
Employment and Job Security
Household Wealth
Expectations and Sentiment
Interest Rates
What are animal spirits
How households make major purchases based on expectations of the economic situation
What are secured loans
Money borrowed that is secured against an asset you own
What are unsecured loans
Money supported only by a borrower’s creditworthiness - usually charged at a higher interest rate
What can we say about household disposable income (Yd) in a closed economy
Yd = C + S
What is disposable income
Income after taxes and benefits
What is APS
Average Propensity to Save
Saving Ratio for households measures the amount of money households have available to save as a percentage of their total disposable income
What is MPS
Marginal Propensity to Save
Additional income that is saved
Equation for MPS
Change in Savings / Change in Income
Why is saving important
Business Survival
Funding Investment
Buffer of financial resources for consumers
