3.2 - Households

Question 1

Disposable income

Answer 1

Income remaining for a person to spend or save after all taxes have been paid

Question 2

Spending

Answer 2

Using money to purchase goods and services

Question 3

Saving

Answer 3

Setting aside income for a period of time so that it can be used later

Question 4

Borrowing

Answer 4

Obtaining money, goods, or services in exchange for promise of future payment

Question 5

Household

Answer 5

A person or group of people living in the same residence

Question 6

Major factors influencing spending (4)

Answer 6

• income
• wealth
• interest rate
• consumer confidence

Question 7

Changes to income (spending)

Answer 7

Consumption increases as disposable income increases (same vice versa)

Question 8

Changes to interest rate (spending)

Answer 8

If commercial banks change interest offers to costumer because of a change in base rate:
- higher interest causes higher interest for borrowing = less consumption

Question 9

Changes to consumer confidence (spending)

Answer 9

If consumers feel financially secure in an economy, they will tend to spend more
- if there is a recessionary economy, consumers will feel insecure in their salaries and consumption rates and so spending decreases

Question 10

Major factors influencing saving (name 4)

Answer 10

Saving for future consumption, interest rates, income, availability of saving schemes, consumer confidence, retirement, economic conditions (inflation = more saving due to higher prices)

Question 11

Changes to income (saving)

Answer 11

The proportion of disposable income spent depends on the household finance:
- low income: disposable income spent on necessities and minimal luxuries (little to none left to save)
- medium income: increase consumption and saving
- high income: significant increase in savings

Question 12

Changes to interest rates (saving)

Answer 12

Increase in interest rates offered by commercial banks will motivate households to save more
Decrease in savings interest disincentivises households to save and encourages consumption

Question 13

Changes to consumer confidence (saving)

Answer 13

Households tend to save when they are more fearful of the future of the economy
- stronger economy means higher consumer confidence and less savings; same vice versa

Question 14

Major factors influencing borrowing (name 4)

Answer 14

Ways of borrowing and availability of credit, Interest rates, Consumer confidence, Income

Question 15

Changes in income (borrowing)

Answer 15

When disposable income increases so does borrowing, due to the capability of making additional monthly payments
- low income households are usually unable to borrow from commercial banks as they cannot repay the set schemes

Question 16

Changes in interest rate (borrowing)

Answer 16

If interest rates decrease, medium & high income households decide to borrow more money, as it is now cheaper to repay

Question 17

Changes in consumer confidence (borrowing)

Answer 17

When the economy is booming, confidence is high resulting in more borrowing & consumption

Question 18

Interest rate

Answer 18

The additional cost of borrowing money and the reward for saving it in a commercial bank (through set schemes)

Question 19

Utility

Answer 19

Ability or capacity of a good or service to be useful and give satisfaction to someone

Question 20

Consumption

Answer 20

using goods and services; spending

Question 21

Consumer expenditure

Answer 21

the total amount spent by consumers on newly produced goods and services

Question 22

Real income

Answer 22

how much money an individual makes after accounting for inflation

Question 23

Recent trends influencing spending (name 4)

Answer 23

• concern for the environment
• rapid advancement in technology
• population trends
• social attitude
• shorter working hours
• rise in real income
• health consciousness

Question 24

How is the concern for the environment influencing spending?

Answer 24

increased demand for self-sufficient and non-polluting products (recycled, not tested on animals etc.)

Question 25

How is a rapid advancement in technology influencing spending?

Answer 25

- new, expensive products have become available and have created new consumer demands - rapid development

Question 26

How are population trends influencing spending?

Answer 26

- increase in average life expectancy increases spending on retirement activities (e.g. vacation, healthcare) - less money spent on children as people are marrying later or choosing not to have children - instead they travel, self-care etc.

Question 27

How have social attitude changes influenced spending?

Answer 27

- more opportunities within the job industry for different ethnic groups and genders - almost everyone is working, demand for time-saving appliances (microwave etc.) has. increased

Question 28

How have shorter working hours affected spending?

Answer 28

- technological developments take over human jobs but salaries remain stable; working online, remotely has had an increase in popularity (welcomed into jobs) - working less hours than ever - more leisure time, increased spending on vacations, sports etc.

Question 29

How has the rise in real income affected spending?

Answer 29

- an increase in average income of households and higher proportions of medium income households - enable people to spend more (leisure, luxuries etc.)

Question 30

How it effected spending that people are more health conscious?

Answer 30

- as the disposable income of households rise, people now have the capability of spending it on long-term services that support their healthcare - exercise has become popular (gym memberships)

Question 31

What are the major saving patterns? (name 5)

Answer 31

- Age - Sex - Gender - Career - Wealth - Lifestyle - Economics situations - Cultural attitudes

Question 32

Recessionary economy

Answer 32

Two or more consecutive quarters of negative economic growth

Question 33

Base rate

Answer 33

The interest rate at which the Central Bank lends money to commercial banks