lesson 4- consumption Flashcards
what is aggregate demand?
total demand in an economy
-total of all expenditure in a country at a given price
consumption +investment +government spending+(exports-imports_
-CIGXM
what is consumption?
60-65% of aggregate demand
=spending on consumer goods and services over a period of time
what are the two types of goods?
durable-multiple use e.g. car
non durable-single use e.g. chocolate bar
how will wealth affect level of consumption?
As wealth rises, so does consumption
-wealth effect- people think they have more money, so spend more.
how will inflation affect level of consumption?
-as inflation rises, costs rise, so less consumers buy the goods in order to save money and consumption falls.
OR
-consumers may buy goods if the inflation is predicted to further rise in the future, so consumption may rise.
how will interest rates affect level of consumption?
as they rise, more people save+ less borrow so consumption falls
how will the composition of households affect level of consumption?
young and old people spend more than middle aged people
-more young/old=higher level of consumption
how will availability affect level of consumption?
making credit more available increases consumption
how will expectations and consumer confidence affect levels of consumption?
if people are confident in the economy, people will buy more ->consumption rising
what is marginal propensity to consume?
MPC= change in consumption/change in income
what is average propensity to consume?
APC=consumption/income
what is marginal propensity to save?
MPS=change in saving/change in income
what is average propensity to save?
APS=saving/income``
