2.2.2 Consumption (C)

• What does consumption (C) refer to in economics?

  Total expenditure by households
• Consumption is a major component of Aggregate Demand
• Household spending on entertainment is considered consumption
• What are the two main components of consumption (C)?

  Autonomous and induced
• Autonomous consumption occurs regardless of income
• Induced consumption is influenced by income level
• Match the component of consumption with its description:

  Autonomous consumption ↔️ Independent of income

  Induced consumption ↔️ Dependent on income
• What is one factor that influences consumption?

  Disposable income
• Optimistic consumers spend more during economic downturns

  False
• Consumption is a major component of Aggregate Demand (AD), as shown in the equation: AD = C + I + G + (X - M)
• Order the following components of consumption based on their relationship with income:

  1️⃣ Autonomous consumption

  2️⃣ Induced consumption
• Lower taxes can increase disposable income and raise consumption
• What does the Marginal Propensity to Consume (MPC) measure?

  Fraction of additional income spent
• MPC + MPS = 1
• The Marginal Propensity to Save (MPS) measures the fraction of additional income saved
• If the MPC is 0.8, what is the MPS?

  0.2
• Order the following economic concepts based on their relationship to consumption:

  1️⃣ Disposable income

  2️⃣ Marginal Propensity to Consume (MPC)

  3️⃣ Marginal Propensity to Save (MPS)
• What does the Marginal Propensity to Save (MPS) measure?

  Additional disposable income saved
• The sum of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) equals 1
• High consumer confidence generally leads to reduced spending

  False
• What is the role of consumption in Aggregate Demand (AD)?

  Key component
• Autonomous consumption refers to spending that occurs regardless of income
• Match the consumption component with its description:

  Autonomous consumption ↔️ Independent of income

  Induced consumption ↔️ Varies directly with income
• Lower disposable income leads to increased consumption

  False
• What effect do lower interest rates have on consumption?

  Encourage borrowing and spending
• The Marginal Propensity to Save (MPS) is calculated as 1 - MPC
• What happens to consumption when consumer confidence is high?

  Increases
• When interest rates are low, consumption increases because borrowing is more affordable
• Higher taxes increase disposable income

  False
• How do social security benefits affect consumption during economic downturns?

  Stabilize essential spending
• A middle-class family's consumption includes spending on education, entertainment, and savings