Consumption Flashcards
Define consumption.
Consumption is the total spending by households on goods and services over a period of time.
Define disposable income.
Disposable income is gross income plus benefits minus taxes.
Define savings.
The amount of income not spent.
Define interest rates.
The rewards for saving money and the cost of borrowing money.
What are other names for consumption?
1) ‘Consumer spending’.
2) ‘Household consumer spending’.
What factors affect consumption?
1) Disposable income.
2) Savings.
3) interest rates.
4) Consumer confidence.
5) Wealth effects.
6) Direct taxes.
7) Availability of credit.
How does disposable income increasing increase the level of consumption in an economy?
If income increases, individuals have more to spend. There is a positive correlation between income and consumption.
How does savings decreasing increase consumption?
Savings can be viewed as consumption which is postponed till later. Therefore if your savings is decreasing then that means you have spent it (so it has now become disposable income) so consumption has increased.
What is the correlation between saving and consumption?
Negative correlation.
What is the household saving ratio?
The household savings ratio estimates the amount of money households have available to save, measured as a percentage of their total disposable income.
