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Questions and Answers
What is the primary function of borrowing?
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.
High interest rates lead to an increase in borrowing.
False (B)
What is the primary factor that affects spending, according to the collective economic activities of households?
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?
What is the main difference between a time rate system and a piece rate system?
Target savers save for specific goals, such as buying a car.
Target savers save for specific goals, such as buying a car.
Match the following factors that influence saving with their descriptions:
Match the following factors that influence saving with their descriptions:
What is the formula for Average Propensity to Consume (APC)?
What is the formula for Average Propensity to Consume (APC)?
Match the following wage systems with their descriptions:
Match the following wage systems with their descriptions:
The proportion of household disposable income that is saved is known as the ___
The proportion of household disposable income that is saved is known as the ___
One of the non-wage factors that influence an individual's choice of occupation is ______________, which refers to the satisfaction with the work itself.
One of the non-wage factors that influence an individual's choice of occupation is ______________, which refers to the satisfaction with the work itself.
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Study Notes
Households
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Spending refers to the amount of final consumption expenditure made by households to meet their needs and wants.
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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.
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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
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Forms of saving:
- Contractual saving
- Non-contractual saving
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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
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Influences on saving:
- Income
- Wealth
- Rate of interest
- Tax treatment of savings
- Range and quality of financial institutions
- Age structure
- Social attitudes
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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
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Key decision for a worker is the choice of occupation.
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Factors that influence the choice of occupation:
- Wage factors
- Non-wage factors
- Limiting factor
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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
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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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