Consumption and Saving Exam Questions
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1995 – What are the effects on consumption of:

(i)                  an announcement that the state will not provide pensions to those currently in work;

(ii)                an improvement in the terms of trade;

(iii)               restrictions on the lending policies of financial institutions?

1996 – Describe the consequences for consumption when:

(i)                 the rate of interest increases;

(ii)                occupational pension schemes become compulsory;

(iii)              the currency depreciates;

(iv)              “transitory income” increases.

1997 – How would aggregate saving be affected by:

(i)                 a doubling of state old age pensions;

(ii)                government giving everyone a one-off lump sum payment of ₤1000;

(iii)              a doubling of the rate of growth of income?

1998 – What difference will

(i)                 a surprise inheritance;

(ii)                an increase in house prices;

make to households’ consumption and saving decisions?

1999 – A consumer plans his consumption for two periods: these can be typified as ‘today’ when he

is working and ‘tomorrow when he will be retired.

a)                  How are his consumption plans affected by a rise in current wages?

b)                 What is the effect on consumption in each period of a rise in the rate of interest today?

c)                  What is the impact on savings of an expected rise in prices by tomorrow?

d)                 How is his utility affected in each case?

2000 – How would the average propensity to save be affected by:

(a)               a fall in the rate of population growth;

(b)               more rapid productivity growth;

(c)               a temporary reduction in income tax?

2000 – What is the ‘paradox of thrift’? Will an increase in national savings lead to an increase or a

decrease in national income over time?

September

1994 – What is the effect on aggregate consumption of:

(i)                 an increase in the expected future growth rate of the economy;

(ii)                a reduction in house prices?

1995 – What would be the effect on an individual’s consumption of:

(i)                 a large win in the National Lottery;

(ii)                an increase in the retirement age;

(iii)              a reduction in the compulsory retirement age?

1996 – What effect does a change in interest rates have on consumption?

1997 – What effect, if any, does a reduction in the rate of interest have on the level of aggregate

consumption?

1998 – How would consumption be affected by:

(a)               a belief that interest rates will be raised in the near future?

(b)               An increase in the income tax which the government promises to reduce after one year?

(c)               The anticipation of a stock market crash?

Other Notes in this Category

1. Access to credit / Financial Deregulation
2. Consumption
3. Consumption and Saving Exam Questions
4. Determinants of Consumption
5. Inflation
6. Interest Rates and Monetary Policy
7. Key Points
8. Other Theories of the Consumption Function
9. Problems with Consumption Functon
10. Unemployment/Consumer Confidence/Uncertainty
11. Wealth Effect – Asset Prices, Debt Burden, and Windfall Gains

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