Edexcel A Level Economics A:复习笔记2.2.2 Consumption (C)

The Influence of Disposable Income On Consumption


  • Disposable income is the money that households have left from their salary/wages after they have paid their taxes and have received any transfer payments/benefits
    • If taxes increase, then disposable income decreases - and vice versa
    • If wages fall, then disposable income decreases - and vice versa
    • If transfer payments to a household increase (e.g. Unemployment benefits), then disposable income increases - and vice versa
  • Consumption increases as disposable income increases
  • Consumption decreases as disposable income decreases

The Relationship Between Savings & Consumption

  • Disposable income can either be saved or spent on goods/services (consumption)
    • When savings decrease, consumption usually increases
    • When savings increase, consumption usually decreases
  • The household savings ratio calculates household savings as a proportion of household income
    • This percentage is often low when an economy is booming and full of confidence - and vice versa
    • During lockdown in 2020 this ratio reached a record high in the UK of around 25%

Other Influences on Consumer Spending

Changes to Interest Rates

  • Interest rates are set by the government's Central Bank
    • Changes to the base rate cause commercial banks to change the lending and saving rates they offer customers
  • A change in interest rates will change the level of consumer spending and savings
    • If interest rates increase there is a greater incentive to save
      • More saving = less consumption
    • If interest rates increase, the monthly repayment on any loan or mortgage increases
      • Higher loan repayments = less consumption

Changes to Consumer Confidence

  • The stronger the economy, the higher consumer confidence
    • Consumers feel secure in their jobs and are confident of receiving regular salary payments
      • Consumption increases and saving decreases
  • In a weakening or recessionary economy, consumer confidence falls
    • Consumers feel less secure in their jobs
      • Consumption decreases and saving increases

Changes to Wealth

  • If consumer wealth increases, then consumption usually increases
    • Rising property prices or share prices give consumers confidence to borrow more money
      • Increased borrowing = increased consumption