consumption

Question 1

What is marginal propensity to consume?

Answer 1

The proportion of additional income devoted to consumption

Question 2

What is consumption?

Answer 2

Spending of goods and services by households

Question 3

Factors that affect consumption

Answer 3

Disposable income, Consumer confidence, household wealth, inflation expectations, market interest rates

Question 4

formula for MPC

Answer 4

MPC = Change in consumption/ change in income

Question 5

what range does MPC lie in?

Answer 5

0-1 and no greater than 1

Question 6

index number calculation

Answer 6

raw number/base year raw number * 100

Question 7

What is the marginal propensity to save?

Answer 7

the proportion of an increase in the disposable income that households would devote to saving

Question 8

savings ratio

Answer 8

% of disposable income rather than spent

Question 9

what is the consequence of a higher savings ratio

Answer 9

lower consumption and aggregate demand

Question 10

real interest rate

Answer 10

nominal interest rate adjusted for inflation, a positive real interest incentivises saving

Question 11

Price expectation

Answer 11

If consumers expect the price to fall they may chose to save more

Question 12

consumer confidence

Answer 12

when consumer confidence is strong people are more willing to borrow and save less

Question 13

Need to pay back debt

Answer 13

short term savings to repay credit card bills or space for mortgage deposit

Question 14

permanent income hypothesis

Answer 14

Keynes believed people will consume more or less based on their in the moment tax income

Question 15

Factors affecting consumer confidence

Answer 15

• economic growth
• household debt
• unemployment
• house prices

Question 16

two kinds of wealth

Answer 16

• physical wealth
• monetary wealth

Question 17

interest rates

Answer 17

rewards for saving
costs for borrowing