Households: Practice Questions

Which combination of changes is most likely to cause a household to increase its level of saving?

Which scenario would most likely lead to an increase in household spending even if disposable income remains unchanged?

A household is a net saver (it has more money in savings accounts than it owes in debt) and holds a fixed-rate mortgage on its property.
If the central bank increases interest rates, what is the most likely immediate effect on this household's disposable income?

Which of the following is the most accurate definition of saving for a household?

An economy is experiencing a period where the nominal interest rate on savings is 3%, while the annual inflation rate is 5%. What is the most likely effect on household saving behavior?

Identify two reasons why a household might increase its level of saving following a rise in market interest rates.

Explain the relationship between disposable income and a household's average propensity to borrow during a period of high consumer confidence.

Analyse how a significant increase in interest rates set by the central bank would simultaneously affect household saving and household borrowing.

Households are key microeconomic decision makers whose actions regarding money affect the wider economy.

(a) Define disposable income.
(b) Explain two reasons why a household’s spending might be higher than its current disposable income.
(c) Using two examples, describe how consumer confidence can influence the level of household borrowing.

Households make decisions daily regarding how much of their income to spend or save.
(a) Identify two reasons why a household might choose to save a larger proportion of its income.
(b) Explain how a significant increase in consumer confidence is likely to affect the level of household spending and borrowing.