Chapter-17 Flashcards
Households (10 cards)
What is disposable income?
Disposable income is the income left after income tax has been deducted and state benefits have been received.
What is wealth?
Wealth refers to a stock of assets, which includes money held in bank accounts, shares in companies, government bonds, cars, and property.
What is consumption?
Consumption refers to the expenditure by households on consumer goods and services.
What is the rate of interest?
The rate of interest is the charge for borrowing money and the payment received for lending money.
What is average propensity to consume (APC)?
Average propensity to consume (APC) is the proportion of household disposable income that is spent.
What is the savings ratio?
The savings ratio is the proportion of household disposable income that is saved.
What factors influence the savings ratio?
i) Income: As disposable income rises, the total amount saved and the savings ratio increase.
ii) Wealth: Wealthier individuals find it easier to save.
iii) Rate of interest: A rise in interest rates may increase savings as people earn more from their savings.
iv) Tax treatment of savings: Tax-free savings schemes encourage people to save more.
v) Range and quality of financial institutions: A variety of saving opportunities and confidence in financial institutions affect saving behavior.
vi) Age structure: Middle-aged people tend to save more, while the young and old save less.
vii) Social attitudes: Cultural attitudes towards saving vary, with some societies valuing saving more than others.
What is the average propensity to save (APS)?
The average propensity to save (APS) is the proportion of household disposable income that is saved.
What is a mortgage?
A mortgage is a loan taken out to help buy a house.
What factors influence the amount of money people borrow?
i) Availability of loans and overdrafts: The easier it is to borrow, the more likely people are to borrow.
ii) Rate of interest: A rise in the rate of interest increases the cost of borrowing, which is likely to reduce borrowing.
iii) Confidence: People who are confident about the future are more likely to borrow, expecting their higher future income will enable them to repay the loan.
iv) Social attitudes: In some countries or groups, there is more concern about the risks of borrowing, affecting borrowing patterns.
