Determinants Of AD (consumption)

Question 1

Relationship between Disposable income and consumption

Answer 1

If rises consumption increases

Question 2

Relationship between Interest rates and Consumption

Answer 2

If rises consumption decreases because

1. Savings become more attractive
2. Borrowing becomes more expensive

Question 3

Relationship between Wealth and Consumption

Answer 3

Houses and shares major source for wealthy people.

If house prices rise consumption increases because

1. Greater borrowing due to larger mortgages needed to finance House purchases
2. Wealth effect - people spend more

Question 4

Disposable income

Answer 4

Gross income less income tax and national insurance contributions plus cash welfare benefits

Question 5

Interest rates

Answer 5

Cost of borrowing or the reward for saving as a percentage of money borrowed/saved

Question 6

Wealth

Answer 6

Stock of assets owned by people

Question 7

Wealth

Answer 7

Stock of assets owned by people