Econs - 3.2, 3.3 Flashcards
disposable income - definition
the amount of income a person has available to spend on goods and services after compulsory deductions such as income tax
current expenditure - definition
- money spent on goods and services consumed within the current year
- often recurrent
- eg. food, clothing, entertainment and haircuts
capital expenditure
- money spent by on fixed assets (items owned by an individual / firm which last more than 12 months)
- eg. computer, cars, buildings
economic factors - definition
key influences that affect how individuals, businesses and governments make decisions in the economy
main economic factors
- income : how much money people earn
- employment : availability for jobs
- inflation : how prices change overtime
- interest rates : cost of borrowing & reward for saving
- government policies : taxes, subsidies, regulations
importance of economic factors
- drive for informed decision-making in the economy
- affects growth, stability and living standards
low income - spending, saving, borrowing
- spending : spent on needs
- saving : tends to be low after spending on needs
- borrowing : often done to fund personal capital (house, furniture), banks are less likely to borrow
middle income - spending, saving, borrowing
- spending : spends on some luxuries and needs
- saving : able to save some money
- borrowing : borrow to fund personal capital (house, furniture), owners of credit cards
high income - spending, saving, borrowing
- spending : purchases luxury goods and services
- saving : high levels of savings
- borrowing : less need to borrow
conspicuous consumption
- the feeling to need to buy luxury items for status
- wealthy people often engage with conspicuous consumption
interest rates
- determines the cost of borrowing / lending money
increased interest rates
increase interest rates => increased cost of borrowing => decreased demand for loans and increase repayments on existing loans => decrease in consumer spending
decreased interest rates
decreased interest rates => decreased cost of borrowing => increased demand for loans and decreased repayments on existing loans => increased in consumer spending
confidence levels
- confidence of consumers and businesses
- eg. recession => consumers spend less in fear of losing their jobs
- eg. economic boom => prices of luxury items increase / businesses invest more
inflation
- increase in inflation reduces the purchasing power of individuals
- tends to reduce spending, less saving and more borrowing
age
- income typically rises as age increases
- different spending needs
size of households
- influences expenditure patterns because more people in the house will consume more than a few
savings - definition
occurs when a person puts away part of their current income for future spending
- eg. parents save money for children’s education
spending - definition
money used by individuals, businesses or the government to buy goods and services
borrowing - definition
occurs when an individual, firm or the government takes out a loan, paying it wih interest over time
level of savings are affected by ..
- age
- attitude of saving
- consumer and business confidence
- interest rates
- income levels
reasons for borrowing
- fund expensive items
- fund private / tertiary education
- purchase property / land
- start new business / big projects
factors affecting individuals choice of occupation
- wage factors
- non wage factors
- personal factors
wage factors
- basic pay (salary)
- bonuses & overtime (extra income for extra work)
- fringe benefits (health insurance, company car)
