Economics Chapter 17: Households
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Questions and Answers

What is the primary function of borrowing?

  • To facilitate the transfer of income from those who prefer not to spend it presently to those in need of additional funds (correct)
  • To reduce expenditure
  • To facilitate savings
  • To increase income

    • High interest rates lead to an increase in borrowing.

    False

    What is the primary factor that affects spending, according to the collective economic activities of households?

  • Interest rates
  • Disposable income (correct)
  • Wealth
  • Confidence

    • What is the main difference between a time rate system and a piece rate system?

    <p>A time rate system pays based on hours worked, while a piece rate system pays based on output.</p> Signup and view all the answers

    Target savers save for specific goals, such as buying a car.

    <p>True</p> Signup and view all the answers

    Match the following factors that influence saving with their descriptions:

    <p>Income = Determines the proportion of disposable income saved Wealth = Increases savings as it generates income Rate of interest = Affects savings as middle-aged people tend to save more Tax treatment of savings = Encourages saving through tax concessions Age structure = Is a return or income that affects savings</p> Signup and view all the answers

    What is the formula for Average Propensity to Consume (APC)?

    <p>APC = Consumption (C) / Income (Y)</p> Signup and view all the answers

    Match the following wage systems with their descriptions:

    <p>Time rate system = Pay based on hours worked Piece rate system = Pay based on output Overtime pay = Paid for work beyond standard hours at a higher rate Performance-based pay = Pay based on bonuses and commission</p> Signup and view all the answers

    The proportion of household disposable income that is saved is known as the ___

    <p>Average Propensity to Save (APS)</p> Signup and view all the answers

    One of the non-wage factors that influence an individual's choice of occupation is ______________, which refers to the satisfaction with the work itself.

    <p>job satisfaction</p> Signup and view all the answers

    Study Notes

    Households

    • Spending refers to the amount of final consumption expenditure made by households to meet their needs and wants.

    • Factors affecting spending:

      • Disposable income: an increase in disposable income leads to an increase in spending, but decreases as a percentage of income.
      • Wealth: an increase in wealth leads to an increase in spending, as wealth generates income.
      • Confidence: an increase in confidence leads to an increase in spending, while a decrease in confidence leads to a decrease in spending.
      • Interest rates: an increase in interest rates leads to a decrease in spending, as borrowing becomes more expensive and saving increases.
      • Income distribution: a more even distribution of income leads to an increase in expenditure.
      • Technological advancements: product replacement leads to changes in spending.

    • Proportion of income: the relationship between spending and income is represented by the Average Propensity to Consume (APC), which is the proportion of household disposable income that is spent.

      • Formula: APC = Consumption (C) / Income (Y)

    Saving

    • Forms of saving:

      • Contractual saving
      • Non-contractual saving

    • Reasons for saving:

      • Target savers save for specific goals
      • Saving for retirement and future
      • Saving to finance children's education or leave an inheritance
      • Saving for emergencies and unforeseen opportunities
      • Saving to increase current income through interest or asset appreciation

    • Influences on saving:

      • Income
      • Wealth
      • Rate of interest
      • Tax treatment of savings
      • Range and quality of financial institutions
      • Age structure
      • Social attitudes

    • Income and saving: saving is the portion of disposable income not spent.

      • Average propensity to save (APS): the proportion of household disposable income that is saved.
      • Formula: APS = Saving (S) / Income (Y)

    Borrowing

    • Borrowing facilitates the transfer of income from those who prefer not to spend it presently to those in need of additional funds.
    • Influences on borrowing:
      • Availability of loans/overdrafts
      • Interest rates
      • Confidence in future
      • Social attitudes

    Worker

    • Key decision for a worker is the choice of occupation.

    • Factors that influence the choice of occupation:

      • Wage factors
      • Non-wage factors
      • Limiting factor

    • Wage factors:

      • Earnings (total pay a person receives)
      • Wage rate affects work attractiveness, and is determined by different wage systems:
        • Time rate systems
        • Piece rate systems
        • Overtime pay
        • Performance-based systems
          • Bonuses
          • Commission

    • Non-wage factors:

      • Job satisfaction
      • Type of work
      • Working conditions
      • Working hours
      • Holidays
      • Occupational pensions
      • Fringe benefits
      • Job security
      • Career prospects
      • Size of firm
      • Location

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    Description

    This quiz covers the economic activities of households, including spending habits, factors that influence spending, and decision-making processes. It's ideal for students studying microeconomics.

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