3.2 - households

Question 1

household definition

Answer 1

on or more people who live in the same house/living accommodation

Question 2

income definition

Answer 2

the amount of wages/salaries a person gets in exchange for labour

- either spent or exchange

Question 3

gross income definition

Answer 3

total income received from the employer

Question 4

disposable/net income

Answer 4

gross income minus taxes and reductions

Question 5

discretionary income

Answer 5

income for leisure/savings

- gross income minus necessities

Question 6

changes in income over time + factors influencing income

Answer 6

• low wages in the beginning
  
  • interns, graduating programme
• increase in wages
  
  • experience, qualifications, promotion
• changes in demand/ supply of labour
• changes from part-time to full time labour

Question 7

what can households do with income? (3)

Answer 7

spending, saving and borrowing

Question 8

factors influencing a person’s spending (6, name 3)

this is common sense

Answer 8

1. disposable income
2. wealth
3. consumer confidence (job security)
4. interest rate
5. distribution of income
6. advances in technology

Question 9

consumption patterns

Answer 9

• low income earners don’t have much income to save
  
  • spend most of their disposable income on necessities, e.g. rent
• some spend more than they earn due to borrowing
• as income increases, spending increases

Question 10

average propensity to consume (APC)

Answer 10

proportion of income that is spent:
amount of consumption/disposable income
- high income: spend lower % of their income on necessities, more % on luxury goods
- low income: higher % on their necessities

Question 11

different forms of savings

Answer 11

• contractual
  
  • income earners save a certain amount on a regular basis, e.g. pension or insurance
• non-contractual
  
  • income earners can choose how much money is put aside

Question 12

reasons for saving (6)

another common sense q

Answer 12

• habitual
• retirement
• childrens’ future
• emergency
• future consumption
• large purchases in the future

Question 13

factors influencing saving

Answer 13

• income
• wealth
• interest rate
• tax treatment of saving
• quality of financial institutions
• age
• social/cultural values

Question 14

average propensity to save

Answer 14

amount of savings/disposable income

Question 15

reasons for borrowing (5)

again, common sense

Answer 15

• basic necessities
• education
• healthcare
• purchasing an expensive item
• to fund poor habits