Consumption

Question 1

define consumption

Answer 1

the use of goods and services by households

Question 2

Define Disposable Income

Answer 2

income remaining after deduction of taxes and social security charges, available to be spent or saved as one wishes.

Question 3

Explain the relationship between Disposable Income and Consumption

Answer 3

as income will increase, the consumption will also increase.

Question 4

Explain the relationship between Savings and Consumption

Answer 4

consumption plus saving is equal to disposable income, the increase in disposable income not consumed is saved

Question 5

How is the (Household) Savings Ratio calculated?

Answer 5

the proportion of disposable income that is not spent on consumption

Question 6

Give 3 reasons why interest rates and consumption are inversely related

Answer 6

Interest rates affect the cost of borrowing money over time, and so lower interest rates make borrowing cheaper, allowing people to spend and invest more freely

Question 7

Explain the relationship between confidence and consumption

Answer 7

If for some reason consumer confidence declines, consumers become less certain about their financial prospects, and they begin to spend less money

Question 8

Define Wealth

Answer 8

the total value of all assets owned by a person, community, company, or country

Question 9

Explain how changes in wealth may change consumption

Answer 9

if the value of a person’s investments or savings increases, they may feel more financially secure and be more likely to spend money on non-essential items