Spending, Saving, Borrowing

Question 1

Reasons for consumption/spending (2)

Answer 1

1) Survive/satify besic needs
2) Satisfy wants

Question 2

Conspicuous consumption definition:

Answer 2

People buying goods/services that give them a feeling of higher social status (veblen goods)

Question 3

In order to consume, people need:

Answer 3

money from income, borrowing or savings

Question 4

Factors that affect consumption (4)

Answer 4

1) Income
2) Wealth: all valuable possessions (income, savings, real estate, stock investments, jewelry/gold, collector’s items)
3) Consumer confidence about future (expectations)
4) Interest rates (for borrowing money

Question 5

consumption patterns and trends of low income households

Answer 5

Low income families spend most of their money on basic necessities (food, water, housing)

Question 6

consumption patterns and trends of high income households

Answer 6

High income families spend relatively less on basic needs but more on luxurious goods like electronic gadgets and leisure goods

Question 7

Reasons for saving (3)

Answer 7

• Future consumption
• Gain interest over savings
• Precaution (future emergencies)

Question 8

Factors affecting borrowing (4)

Answer 8

• Interest rates
• Wealth
• Consumer confidence about future
• Availability to borrow

Question 9

Reasons for borrowing (2)

Answer 9

• Surivive / Unable to buy goods and services
• Price of desired good / service is too high to pay at once (house/car)

Question 10

Problems with borrowing (2)

Answer 10

• If borrower is unable to repay loan –> bankrupt (person) or insolvent (firm)
• Financial crisis –> Too many US borrowers unable to pay back loan

Question 11

Difference in consequence between mortgage and loan

Answer 11

Loan - Court declares you bankrupt
Mortgage - Bank takes house (you are not considered bankrupt)