What % of AD is consumption ?
~60%
Define Disposable income
the money households have left over from their salary after they’ve paid their direct taxes and received transfer payments.
What 3 thing influence the amount of disposable income ?
1) amount of direct taxes
2) wages/salary
3) amount of transfer payments
what is the relation between disposable income level and consumption
when disposable income increases, consumption increases.
what are savings ?
what you don’t spend out of your disposable income.
Name 5 influences of the amount people consume/save
1) interest rates
2) consumer confidence
3) changes to wealth
4) availability of credit
5) inflation
how do increasing interest rates effect consumption/ spending (two ways) ?
1)increased interest rates incentivise saving and discourages borrowing, so more saving and less borrowing = less consumption. (vice versa)
2) increased intrest rates = higher monthly mortgage/loan payments, less discretionary income, so less consumption.
what is discretionary income
Disposable income - mortgage income repayments
how does consumer confidence influence consumption/saving ?
- high consumer confidence = more consumption, less saving
- low consumer confidence = less consumption, more saving
how does consumer confidence link to the state of the economy ?
strong economy = high confidence
How does changes to wealth influence consumption ?
- when wealth increases, consumption increases. (vice-versa)
how does availability of credit influence consumption ?
when credit is readily available, consumption increases. (vice-versa)
How does inflation effect consumption ? (two things)
1) during anticipated inflation, consumption rises
2) during inflation, consumption falls
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2.1.1 Economic growth29
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2.1.2 Inflation35
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2.1.3 Unemployment48
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2.2.2 Consumption13
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2.2.3 Investment13
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2.2.4 Government expenditure4
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2.2.5 Net trade7
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2.4.1/2 National income/Injections & Withdrawals9
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2.4.3 equilibrium level of real national output4
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2.4.4 The multiplier12
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2.5.1 causes of growth6
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2.5.2 output gaps4
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2.5.3 trade cycle3
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2.5.4 impact of economic growth8
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2.6.2 Part 1 Monetary Policy18
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2.6.2 Part 2 Fiscal Policy13
