Question

In: Economics

Discuss the relationship between saving and consumption. In your discussion, distinguish between saving and savings. Consumer...

  • Discuss the relationship between saving and consumption.
  • In your discussion, distinguish between saving and savings.
  • Consumer spending is directly affected by expectation of future income.
    • What events might change consumer confidence?
    • Discuss and provide examples of events that may change consumer confidence and therefore impact consumer spending.
      • Do your best to avoid posting duplicated information if possible.

Where appropriate, cite examples from your text or other readings.

Solutions

Expert Solution

1. Saving :- Saving is the process of setting apart a portion of current income for future benefit or the resources are assembled in this way over a given period of time. It may take in the form of bank deposits, purchases of securities, cash holding etc.

2. Consumption :- Consumption means the use of goods and services by houshold sector, consumption is different from consumption expenditure, which is the buying of goods and services for use by households.

3. Relationship between the saving and consumption :-

Income = Consumption + Savings

The biggest part of total spending is called consumption

C=f(Y)

Here, C=Consumption.

f=Function.

Y=Income.

There is a positive relationship between the income and consumption.

S=f(Y)

Here, S=Saving

f=Function

Y=income.

There is a positive relationship between the income and consumption.

Y=C+S

Both consumption and saving depend on income.

4. Difference between the Saving and Savings.

Saving is the function of spending less than we receive in income and placing the rest into a reserve account for later use.

Savings is a genuine quantity of funds in that reserve account or another name for that reserve account.

5. Events that impact consumer confidence and consumer spending:

Consumer confidence is an economic indicator that calculate the degree of positive that consumers feel about the overall state of the economy. The events that impact consumer confidence and consumer spending are :

a) Household or family level.

b) Wealth.

c) Future expectations.

d) Interest Rates.

e) Age

f) Education System.

g) Family Size.

h) Expected Future income.


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