Consumer Spending Saving and Borrowing

Tuesday, February 28, 2017

Consumer Spending 

1. Who is a consumer?
The person who uses the goods and services for final consumption

2. What is spending?
Paying out money in buying or hiring goods and services

3. What factors influence Consumer Spending?
  • Disposable Income (Take Home Pay) 
  • Income Tax (A tax on consumer income) 
  • Wealth (Those assets with a money value) 
  • Inflation (A persistent rise in the price level) 
  • Rate of Interest (Cost of Borrowing, Reward for Saving) 
  • Social Security benefits (Aid to low-income members) 
  • Borrowing (Obtaining money as a loan) 
  • Age Composition of household population 
4. On which items most lower-income earners spend a higher proportion of their income?
They spend on necessities like food, clothing etc.

5. On which items most higher-income earners spend a higher proportion of their income?
They spend on luxury items like buying motor cars, spending holidays abroad etc.

6. Why do young people spend more money?
To set up homes and bringing up their children.

7. Why do middle-aged people spend less money?
To save more in preparation for retirement.

8. Why do old-aged people spend more money?
They spend on health care by withdrawing their savings

Consumer Saving 

9. What is meant by the term ‘Saving’?
It refers to that part of income that is kept aside for future use

10. What are the three types of Saving?
  • Increase in stock of cash 
  • Increase in bank deposits 
  • Increase in stocks or shares 
11. What factors influence Consumer Saving?
  • Disposable Income 
  • Social attitude towards saving 
  • Preparation for the future 
  • Purchase of durable goods 
  • Rate of Interest 
12. Describe how and why different income groups have different expenditure patterns?
Those with lower income spend a higher proportion of their income on necessities. They are not able to save due to lower earnings. But those earning more income are not only able to spend on both necessities and luxuries, but also to save for future use.

Consumer Borrowing

13. What is called borrowing?
Obtaining money as a loan

14. What factors affect consumer borrowing?
  • Rate of Interest 
  • Availability of credit facilities 
  • Demand for consumer durables

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