Economics of Consumption and Saving

Consumption can be classified into spending on goods and spending on services.

Durable goods are items that provide a stream of services over time, like a car or a television.

The MPC is the proportion of a change in income that is spent on consumption, calculated as MPC = Change in consumption / Change in income.

<p>An increase in wealth can stimulate consumption because it enhances people's feelings of financial security and borrowing power.</p> Signup and view all the answers

<p>Higher consumer confidence usually leads to increased spending, while lower confidence results in reduced purchases.</p> Signup and view all the answers

<p>Higher interest rates increase monthly repayments on credit, which can reduce consumer demand.</p> Signup and view all the answers

<p>Saving is the portion of income that is not spent on consumption.</p> Signup and view all the answers

<p>Rising house prices can lead to increased borrowing and spending, while falling prices may result in reduced expenditure.</p> Signup and view all the answers

<p>Non-durable goods are items that are used up immediately or over a short period, such as ice cream or soap.</p> Signup and view all the answers

<p>Cars are primarily bought through loans because they are expensive durable goods, and taking out a loan makes them more accessible.</p> Signup and view all the answers