Macro - Concumption (C)

Question 1

What is disposable income

Answer 1

the income that an individual has after paying all indirect taxes. e.g. As consumers have more income they are likely to increase their spending. This increases consumption within an economy and therefore AD increases.

Question 2

How does disposable income affect consumer spending?

Answer 2

When consumers spend more, they usually save less (and vice versa). The marginal propensity to consume shows how much of a consumers extra income they spend and how much they save.

Question 3

What is the relationship between savings & consumption?

Answer 3

When consumers save more, they usually spend less (and vice versa). The marginal propensity to consume shows how much of a consumers extra income they spend and how much they save

Question 4

How does interest rates affect consumer spending?

Answer 4

Interest rates will have a negative affect on consumer spending as people would rather save money then spend it as they would earn from saving.

Question 5

How does consumer confidence affect consumer spending?

Answer 5

As consumer confidence increases, so will their marginal propensity to consume.

Question 6

How does the wealth affect affect consumer spending?

Answer 6

The wealth effect flows from savings to household spending. Savings and consumer spending tend to have an inverse relationship (higher savings will decrease consumer spending and lower savings will increase consumer spending)