UK Economy and Disposable Spending

UK Economy and Disposable Spending1. Definitions in the United Kingdom thrifta) Real fluid incomeReal spendable income is an frugal indicator which is the in the flesh(predicate) income that households re primary(prenominal)ed with after g all overnment charges and income taxes were paid, likewise after it was adjusted for changes in prices or for inflation. This available income sight each be spent or salve by households. According to the Keynesian theory of custom, at that place is a refer between authoritative useable income and usage shit as puff up as nest egg.In the UK frugality, real useable income witnessed ups and guttles since the financial crisis of 2008, in 2010 it falloffd by 0.8% while in 2011 it decreased by 2.0%. One of the main reasons for this declining real disposable income is due to inflation and the rising prices of commodity goods as well as the VAT outgrowth.b) Unsecured debtUnsecured debt refers to a loanword that is non backed by an asset, in this case if virtuallyone is not able to re indemnify the coin owned from a financial knowledgeableness they wont take any of his property since they do realise the right to. Some of the unsecured debts include credit cards, student loans and health check bills.It is considered of high risk for lenders, when the borrower fails to suffice the full repayment they might lead to go through the process of suing them in order to get their notes back.Unsecured debt is the opposite of secured debt for instance, a house mortgage is backed and secured by the house and when someone fails to pay the lenders they potbelly close it and take it.In the UK economy, in 2013 the UK witnessed its first development in unsecured debt since the financial crisis of 2008 by 8.5 billion pounds as a result of the increase student loans. In the other hand unsecured collectr debt stayed flat at 5,900 pounds per household.c) Real participation sum upThe real rice beer rate is the rate t hat is expected to be received by investors after removing inflation effectsReal engross rate is linked with nominal rate and inflation rate as it is calculated as the foldepressioningReal bet rate = nominative sideline rate Inflation rateIn the UK economy, the real chase rate remained low since the financial crisis, after 2008 it decreased from 1.4% to -1.6% in 2009, it proceed in decreasing to -2.5% in 2010, while it increase from 2010 to 2012 up to -1.2% as the following graph showsd) long-wearing goodsDurable goods argon goods that sustain for a long plosive consonant of time and ingest a useful smell of at least three courses. Goods that argon purchased and consumed in short period of time are called non-durable goods such as medicine or food. Durable goods are goods that they dont need to be bought frequently. Examples of durable goods are furniture, cars, jewelry, appliances, and as well as on heavy assets such as airplanes or ships.In the UK economy, according to Chart C UK consumers drop downing on durable goods increase dramatically from 2004 to 2010. According to the Bank of England consumer purpose on durable goods change magnitude by 2.1% from 2012 to the first quarter of 2013 these expending were mostly on force back cars, appliances and clothes.The following chart displays the components of UK consumer pass on durable goodse) Animal animateAnimal spirit is a concept developed by bath Maynard Keynesthat refers to the direct of consumer self-assurance and its effect on the economy. It is future expectations that drive the consumers to either spend or save and the provideingness of businesses to invest in a legitimate market.In the UK economy, consumer federal agency and optimism round the future of the UK economy has been increase dramatically over the 4 rifle years, from 2011 at -30% to 0% in 2014 as the following graph showsThis increase was generally due to improvements in purchase role and increased job securit y.In the UK, consumer confidence is related to use of goods and services and it is used to predict future consumption.2. What is the relationship in normal quantify between real disposable income and the direct of household consumption?In normal multiplication when there is economic stability and a higher(prenominal) consumer confidence the relationship expected between real disposable income and the level of household consumption is that when the real disposable income increases the level of household consumption increases, in addition when consumers income gets higher they lean to save less and consume more of goods they want.When the real disposable income decreases the level of household consumption decreases since consumers tend to save more and consume only priority goods.3. Identify and condone two non-income determinants of the level of consumer spending in the UK economyOne of the non-income determinants of the level of consumption in the UK context is consumer confid ence. According to chart B when consumer confidence decreases due to reasons such as that consumers are feeling unsecure about their jobs, the attempts to make major purchases decreases as well the thing that results in high savings since consumers are not optimistic about their current economy.There is a clear impact of consumer confidence on consumption levels in the UK economy, when confidence increases consumers forget make more major purchases and volition save less. some other non-income determinant of the level of consumption in the UK economy is interest rate, when interest rate decreases people tend to borrow more money from banks to spend which results in higher consumption, when interest rate increases it becomes expensive to borrow money the thing that increases saving, people will leave their money in banks to take advantage of the high interest rate the thing that reduces consumption.4. Identify and inform two macro-economic consequences of a sharp impinge on in co nsumer spending in the UK economyA sharp fall in consumer spending can have a ostracize impact over the UK economy since it increases unemployment and decreases issue levels.When consumer spending fall, the consumption of goods produced by firms will also fall, this can light companies benefits and increases their costs, in order to lower costs they companies will reduce the total of their employees the thing that increases unemployment.Another issue caused by a decrease in consumer spending is a decrease in the quantity and quality of output. A decrease in consumer spending decreases carry the thing that lowers the willingness of firms to invest in capital and labor to produce efficiently and effectively. When demand decreases the output decreases resulting in less goods and services produced the thing that harms the economy of the UK by slowing it down.Deflation can also be a consequence of a sharp fall in consumer spending. Less consumer spending means less demand of firms p roducts and services, firms will have to sell products to generate money in order to pay their fixed costs, as a result prices godown and demand also go down even more since consumers are expecting prices to decrease more in the future. A sharp fall in consumer demand creates a vicious circle and less money circulation in the economy which is considered very damaging the economy.5. Components of aggregate demand in MoroccoConsumer spending on durable goods in Morocco6. call down oneThe Maroc families spending power increased over the last years according to statistics in 2011 there was an increase in spending per capita by 4.1% to $1,760, this increase is due a stable inflation rate and government subsidies on commodity goods. This increase in spending will increase consumption of goods and services and businesses will make more investments which will contribute positively in increasing the GDP which result in an increased economic growth. take away 2Moroccan secured debt is low and limited only for creditworthy clients with that are employ and with an income who are able to make the repayment. The number of Moroccan veneer negative equity is considered very low.6. In the Moroccan economya) Real disposable incomeThe real disposable income in morocco witnessed a continuous increase over the last 4 years from 62,096 gazillion dollars in 2010 up to 075,937.1 gazillion dollars in 2014.This increase in real disposable income is due to kind-hearted development projects and investments on infrastructure. This increase also allowed Moroccan consumers to purchase products that were some years earlier categorized as luxurious.b) Unsecured DebtAccording to the mankind Bank, the rate of unsecured debt in morocco is low the majority of financial institutions are providing secured loans with a few exceptions of unsecured loans that are only given to trustworthy clients while the secured loans are given employed people with income also to businesses with fast inves tments.c) Real Interest RateAccording to the available data from year 2000 to 2005 the real interest rate is considered high in Morocco. The real interest rate witnessed a continuous decrease from a value of 14% in 2000 to 9.89% in 2005.In the recent years the real interest rate is increasing as the household income increases to encourage savings in banks.d) Durable GoodsMoroccan consumption of durable goods has increased over the last years due to access to loans such as for cars and houses, also to the increase in disposable income, as well as the increased consumer confidence.The next graph shows the consumer spending in morocco on goods and services including durable goods which shows that the Moroccan consumer spending increased from 472938 million dirham in 2001 up to 494499 million dirham in 2012.d) Animal SpiritsConsumer confidence is considered high in Morocco despite the decrease from 84.5 in 2011 to 74.10 in 2014. Consumer confidence is high since Moroccan consumers are showing optimism about regular income, stock market, employment and the general state of the economy.However the recent decrease in consumer confidence is due to increased prices in commodity goods by the government such as fuel.Extract oneThe Moroccan families spending power increased over the last years according to statistics in 2011 there was an increase in spending per capita by 4.1% to $1,760, this increase is due a stable inflation rate and government subsiding commodity goodsThis increase in spending will increase consumption of goods and services and businesses will make more investments which will contribute positively in increasing the GDP and the economic growth.Extract TwoMoroccan secured debt is low and limited only for trustworthy clients with that are employed and with an income who are able to make the repayment. The number of Moroccan facing negative equity is considered very low.What is the relationship in normal times between real disposable income and the level of household consumption?In normal times in Morocco, the expected relationship between real disposable income and the level of household consumptions is that when real disposable goes up the level of household consumption goes up as well meaning that when the disposable income increases Moroccan consumers save less and spending more.When real disposable income goes down the level of household consumption goes down as well increasing savings and lowering consumption.Identify and excuse two non-income determinants of the level of consumer spending in the Moroccan economyIn the Moroccan economy, peoples expectation is a non-income determinant of the level of consumption. Peoples expectations about the future have an impact over consumption, when consumers except products prices to increase in the future they consume more in the present.Avoiding a rise in prices or inflation in the future increases the level of consumption in Morocco.Another non-income determinant of the level of consu mption is changes in consumers preferences and smell which also manipulates the consumption level in the Moroccan economyThe level of consumption in morocco can also be affected by demographic reasons. A young population increases the consumption, for example, young families increase consumption by buying durable goods such as furniture, appliances or cars, also the larger the family members the higher the consumption.Interest rate and consumer confidence also have an impact on the Moroccan economy similarly to the UK economy.Identify and explain two macro-economic consequences of a sharp fall in consumer spending in the UK economySimilarly to the UK, morocco can also suffer from high unemployment as a result of a sharp fall in consumer spending firms will seek to cut down their costs by lessen the number of their employees which increase the unemployment rate in the Moroccan economy.Firms will also produce less goods and services as demand is low, investments will also decrease r esulting in a lower GDP and lower economic development.7. Comparison between the Moroccan and UK economiesFrom the previous analysis we conclude that, the Moroccan real disposable income increased over the years while the UK disposable income decreased due inflation. The unsecured debt in the UK is higher that unsecured debt in morocco. The real interest rate in morocco is higher than in UK. The consumption of durable goods increased in both countries. Consumer confidence is high in morocco but decreasing over time while in the UK is low but recovering.In both countries, an increase in real disposable income increases consumption level and a decrease in real disposable income decreases consumption level.Interest rate, consumer confidence, expectations, changes in preferences and taste are non-income determinants of consumer spending in both countries.Unemployment, deflation, decrease in level of output are roughhewn consequences of a sharp fall in consumer spending in both countrie s.