Document page
Economics IGCSEPDF 58
118 pagesrevision 46932
PDF 58
Page image rendered from the stored file at 110 dpi; it sharpens as you zoom. Outlines are placed from each region’s stored position on the page (612 × 792 pt).
readable
Source of this text: embedded text layer. The better of the embedded text and OCR is kept.
●
●
●
●
○
Note: A higher interest rate increases the reward for saving and increases the
opportunity cost of spending, providing a direct incentive to save more. A rise in income
(C) will increase the amount saved, but not necessarily the proportion.
■ The income a person or household has left to spend or save. [1]
■ After direct taxes (e.g., income tax) have been deducted. [1]
(Choose any two)
■
If income rises, households have more
money available to spend on goods and services, leading to higher
consumption.
■ Fall in Interest Rates: The cost of borrowing becomes cheaper,
encouraging spending on expensive items (e.g., cars) using credit. The
reward for saving also falls, making spending relatively more attractive.
■ Increased Confidence: If people are optimistic about their future job
security and the economy, they are more willing to spend and less likely
to save for precautionary reasons.
■
Must spend a very high proportion of their income
on
(food, housing, energy). There is little money left over
after these essential costs are covered. Their marginal propensity to
is very high.
■
Can afford all necessities easily. These
necessities make up a small proportion of their total income. They have a
large amount of discretionary income left over.
■ This means they have a much greater
. They can
save for luxuries, retirement, or investment without sacrificing their
standard of living. Their
is high.
(A good answer requires looking at both sides). An increase in taxation on
spending refers to higher indirect taxes like VAT or sales tax.
■
Higher taxes on goods and services
directly increase prices, which should discourage consumption.
■
If spending is less
appealing, saving becomes the default alternative for disposable income.
Taxes can be placed on luxury goods, which
■
are more likely to be bought by high-income earners, encouraging them to
save instead.
2. Structured Question
● (a) Definition of Disposable Income
○ Note:
(b) ReasonsforIncreasedSpending
○
Note:
Increase in Disposable Income:
(c) Analysis ofSavingProportionsbyIncome
○ Note:
Low-income earners:
necessities
consume
High-income earners:
ability/capacity to save
marginal propensity to save
(d) DiscussionofIncreasedSpendingTaxestoIncreaseSaving
○ Note:
○ ArgumentsthatitISaneffectivewaytoincreasesaving:
Makes Spending More Expensive:
Saving becomes relatively more attractive:
Can Target Luxury Goods:
ArgumentsthatitisNOTaneffectiveway / Othermethodsarebetter: