Spending, Saving & Borrowing (Cambridge (CIE) IGCSE Economics)
Revision Note
The Influences on Spending
Spending in an economy is also called consumption
The level of consumption by households is heavily influenced by income, interest rates and the level of confidence in the economy
The Influences on Household Spending and Consumption
Changes to Income | Changes to Interest Rates | Changes to Confidence Levels |
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The Influences on Saving
Disposable income can either be saved or spent on goods/services (consumption)
The Influences on Household Saving
Changes to Income | Changes to Interest Rates | Changes to Confidence Levels |
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The Influences on Borrowing
Households borrow money from friends, relatives, money lenders and commercial banks
Commercial banks usually require security in order to extend a loan
The need for security often prevents low income households from accessing bank loans at competitive rates
The Influences on Household Borrowing
Changes to Income | Changes to Interest Rates | Changes to Confidence Levels |
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Examiner Tip
When evaluating the influences on household spending, saving and borrowing, it is useful to consider the impact on low, median and high income households. E.g. While the poor spend less than the rich, they are likely to spend a higher proportion of their income. They are also less likely to save any additional income as it goes towards buying more necessity products
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