Marginal Propensity to Consume (MPI)

Week 2

What is the largest single component of aggregate demand?

Consumer Spending

What is consumption?

Spending by household on goods and services.

Key factors influencing consumer spending

• Real disposable income for households (e.g.taxes)

• Employment and job security

• Consumer credit

• Asset prices such as property and shares.

• Expectations of future price changes

• Consumer confidence/pessimism

What is the basic interest rate?

Set by bank of England, the rate of interest used by banks as the basis for their own leading rates.

What is consumer confidence?

Expectations about the future including interest rates, prices, incomes and jobs.

What is disposable income?

Income after the deduction of direct taxes and addition of welfare benefits.

What is the FTSE-100 Index?

Tracks share-prices of the 100 largest companies listed on the London Stock Exchange.

What is a savings ratio?

The ratio of personal saving to household disposable income