Consumption 2.2.2

Question 1

consumption

Answer 1

is spending on consumer goods and services over a period of time

Question 2

Marginal propensity to consume

Answer 2

measure the proportion of additional income allocated to consumption.

Question 3

formula for MPC

Answer 3

Change in consumption / Change in income

Question 4

Why is MPC between 0 and 1

Answer 4

tis is because when people earn more, they spend more, but not all of it as they will save some of it to.

Question 5

what does a high MPC show

Answer 5

the higher the MPC, the bigger the increase in consumption will be in response to an increase in income.

Question 6

Average propensity to consume

Answer 6

measures the proportion of total income spent on consumption

Question 7

Formula for APC

Answer 7

Consumption / Income

Question 8

Is APC between 0 and 1

Answer 8

yes

Question 9

what happens if APC rises

Answer 9

than the level of consumption in an economy will increase

Question 10

what will happen to APC if income increases

Answer 10

if income increases APC may fall as the individuals who are wealthier will save more of their income.
However, wealthier people have more confidence to they will tend to spend more and save less

Question 11

Marginal propensity to save

Answer 11

how much of an income is saved

Question 12

Formula for MPS

Answer 12

Change in savings / change in income

Question 13

Average propensity to save

Answer 13

the average amount of an income is saved out of income

Question 14

Formula for APS

Answer 14

Total savings / Total income