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SSC CGL Economic Study Material – Income, Expenditure & Saving

SSC CGL Economic Study Material – Income, Expenditure & Saving

Income, Expenditure and Saving-

Income

Income is money that we receive. e.g. wages or salaries.

Expenditure

Expenditure is money that we spend. e.g. groceries, clothes, etc.

Savings

The money left over at the end of the week/month/year is called Savings.

There are 3 types of Income:

Regular Income –

This is income that we receive on a regular basis and for which we can count on e.g. Salaries and wages, pension, social welfare.

Irregular Income –

This is the income that we may receive from time to time and can include things such as Bonuses and commission, dividend payments, lottery wins and interest on savings.

Benefits-in-kind

This is non-monetary income. These are the things that enrich us but not in terms of actual money payments. Examples of this type of income could include a company car, free meals, hotel stays, etc.

SSC CGL Economic Study Material - Income, Expenditure & Saving
There are 3 types of expenditure:

Fixed Expenditure-

Some bills have to be paid regularly, each week or each month. If the amount is known in advance, for example mortgage repayment, it is known as a fixed expenditure.

Irregular Expenditure

Other bills, although they may have to be paid regularly, for example ESB, may change from one bill to the next. These bills that go either up or down are called irregular expenditure.

Discretionary Expenditure

After all the bills have been paid, there may be money left over to buy nice things for example cd’s or make-up.  These are known as items of discretionary expenditure.

                 The Relationship between Income, Expenditure and Saving-

Economists study consumer spending to project trends and see how consumers affect the national and world economies. Consumers divide income between consumption and savings, and even if the household income goes to zero, consumption doesn’t. Consumers draw on future income or savings to support the household when there is no income. This is autonomous consumption, not dependent on the income level. If consumers have extra dollars, they spend part of that income as well.

Consumption Schedule-

The relationship between income and expenditure is the consumption schedule or consumption function in economics. When disposable income rises, consumption increases. The fraction of each dollar spent is the marginal propensity to consume. Consumption may exceed disposable income for low-income individuals. As the disposable income increases, the average propensity to consume falls. In other words, the consumer spends a smaller percentage of the extra dollars. Consumption increases with increased income, but short-term increases affect consumption less than long-term increases. For an income increase of a year or less duration, consumers tend to change spending habits less than for permanent increases in income.

Changes Affect Expenditures-

Global or national changes affect personal and small-business expenditures. The rise or fall of the stock market is an example of how change affects income and expenditures. When stocks fall, consumers and businesses have less money or less confidence and decrease expenditures. when stocks rise, an increase in confidence and income increases expenditures. Changes in the tax code that increase taxes give the consumer less disposable income with the effect of decreasing consumption. Changes affect the small business and the consumer, but the trends show most with the national economy.

Consumer Confidence-

Perception of the economy and expectations for the future affect expenditures. When consumers lose confidence in the economy, economists see a downward shift in consumption. Optimism encourages consumption and economic growth. Increased income can create optimism, but so can expectations of increased income. Consumer confidence affects outlook and purchases for a small business as well as individuals. The small-business owner handles income and expenditures the same as if he were handling a household. As the small-business owner profits and gains confidence in the economy, expansion and more expenditure follow.

Business Inventory-

Supply and demand affect income and expenditures on a business level. Inventory builds as consumers lose confidence in the economy or have less income to spend. When confidence is high and income increases, business inventory decreases as items sell. Sales can’t exceed goods available, so the small business steps up production. As the small business earns more money, it spends more, keeping with the consumption schedule or the relationship between income and expenditures.

SSC CGL Economic Study Material - Income, Expenditure & Saving
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