Households – Spending, Saving and Borrowing
Use the expandable map to revise how households decide what to spend, save and borrow.
Interactive Mind Map
Click a box to expand the detail notes.
- Disposable income is income left after direct taxes have been paid.
- Spending changes when income, confidence, prices and interest rates change.
- Low-income households spend a higher share on necessities; high-income households can spend more on luxuries.
Income
Higher income usually increases spending because households can afford more goods and services. Lower income forces households to cut back or choose cheaper substitutes.
Confidence
When households feel secure about jobs and future income, they are more willing to spend. If confidence falls, they delay purchases and save more.
Prices and inflation
Rising prices reduce purchasing power. Households may buy less, switch to cheaper products, or spend a larger share of income on essentials.
Interest rates
Higher interest rates make borrowing more expensive and saving more rewarding, so spending may fall. Lower rates can encourage borrowing and spending.
- People save for emergencies, major purchases, education, holidays and retirement.
- Saving is affected by income, interest rates, confidence and access to saving products.
- The opportunity cost of saving is current consumption given up today.
Precautionary saving
Households may save to protect themselves from unexpected events such as illness, job loss or urgent repairs.
Future goals
Savings can fund long-term goals such as retirement, school fees, university, a house deposit or a holiday.
Interest as a reward
When interest rates rise, saving becomes more attractive because households earn a higher return on money kept in banks.
Income level
Higher-income households are usually able to save more. Low-income households may struggle to save because most income is needed for basic spending.
- Households borrow to buy expensive items such as houses, cars or appliances.
- Borrowing rises when credit is available, interest rates are low and households feel confident.
- Borrowing has risks because repayments reduce future disposable income.
Cost of borrowing
Interest is the price of borrowing. If interest rates rise, monthly repayments become more expensive and households may borrow less.
Availability of credit
Banks lend more when they are confident borrowers can repay. If lending rules tighten, households find it harder to borrow.
Consumer confidence
Confident households are more likely to take loans because they expect stable income. Uncertainty makes borrowing feel risky.
Wealth and collateral
Households with assets or stable incomes can often borrow more easily because lenders see them as lower risk.
- Spending now means less saving for the future.
- Saving now means giving up some current consumption.
- Borrowing now increases current spending but creates future repayment pressure.
Short run vs long run
A household may borrow or spend more today to improve living standards, but this can reduce future income because repayments must be made.
Economic conditions
During growth, households may spend and borrow more. During recessions, they often save more and reduce risky spending.
Exam link
When explaining household decisions, link the factor to the effect on spending, saving or borrowing, then explain the consequence for the household.
True / False
Select True or False for each statement.
Disposable income is income left after direct taxes have been paid.
Higher interest rates usually make saving less attractive.
Households may borrow to buy expensive items such as houses or cars.
Saving has no opportunity cost because money is kept for the future.
Consumer confidence can affect household spending and borrowing.
Practice Questions
CIE IGCSE ECONOMICS NOTES
3.0 Microeconomic Decision Makers
Practice
True / False - Trade Unions
15 questionsQuestion 1 of 15
Government laws that restrict union activity can weaken a trade union.
Government policies directly affect union strength. Laws restricting strikes or limiting collective bargaining reduce union effectiveness.
Question 2 of 15
Successful industrial action always results in better pay for workers.
Industrial action can lead to improved pay and conditions, but outcomes are uncertain. Firms may hold firm, or in extreme cases, jobs may be lost or businesses may close.
Question 3 of 15
An industrial union covers all workers in a particular industry, regardless of their skill level.
Industrial unions represent everyone in an industry (e.g., all oil industry workers), unlike craft unions which focus on a specific skill.
Question 4 of 15
A positive consequence of successful collective bargaining for workers includes strengthened unity and morale.
When workers achieve improvements together, it builds solidarity and morale - making the union stronger for future negotiations.
Question 5 of 15
Industrial action can result in financial losses for firms even if the action only lasts a short time.
Even brief disruption can cause significant financial damage through lost orders, reputational harm, and supply chain problems.
Question 6 of 15
For firms, one advantage of dealing with a trade union is saving time by negotiating with one body rather than each worker individually.
Negotiating with a union is more efficient than individual negotiations with each employee, saving management time and resources.
Question 7 of 15
Trade unions can help reduce the chance of workers being discriminated against in the workplace.
Unions advocate for equal treatment and can pursue cases of discrimination on behalf of members - protecting workers from unfair treatment.
Question 8 of 15
One role of a trade union is to lobby the government for worker-friendly policies such as a higher minimum wage.
Lobbying government is a key role — unions push for policies like minimum wage increases and better pension rights.
Question 9 of 15
A craft union is an example of a narrow, skill-based union — such as one representing only electricians.
Craft unions are defined by their focus on one specific skilled trade or occupation.
Question 10 of 15
Collective bargaining is only possible when a trade union is very large.
Any recognised trade union can engage in collective bargaining, regardless of size - though larger unions tend to have more power.
Question 11 of 15
If a company's profits increase, a trade union is likely to argue for a wage increase.
Unions argue that if workers contributed to higher profits, they deserve a fair share. Increased company profits are a factor supporting higher wage demands.
Question 12 of 15
Collective bargaining removes the need for employers to negotiate separately with each individual worker.
This saves time for firms as they negotiate once with the union rather than with each employee individually.
Question 13 of 15
A work-to-rule can still disrupt a firm's operations significantly without workers technically breaking their contracts.
Since workers are only doing what their contract requires, a work-to-rule is legal. But the removal of goodwill and flexibility causes real operational disruption.
Question 14 of 15
A hotel worker is most likely to join a craft union.
Hotel workers would most likely join a general union, which accepts workers from all types of jobs. Craft unions are for workers with specific trades.
Question 15 of 15
Trade unions always lead to conflict between workers and firms.
Trade unions can actually improve industrial relations and communication, reducing conflict. Industrial action is only used as a last resort.
Practice
True / False - Workers
20 questionsQuestion 1 of 20
The level of experience required for a job does not influence a worker's decision to pursue it.
Experience requirements affect accessibility — entry-level retail suits those just starting out, while senior management or judicial roles require extensive prior experience.
Question 2 of 20
High labour turnover is a potential consequence of repetitive, boring work created by division of labour.
Workers dissatisfied with repetitive tasks are more likely to leave their jobs — creating high turnover, which increases recruitment and training costs for firms.
Question 3 of 20
Price increases in minerals and metals can boost earnings in the mining sector.
Mining is part of the primary sector but is an exception — when commodity prices rise, mining firms earn more and can pay higher wages, especially for skilled mining workers.
Question 4 of 20
Labour demand is influenced by the level of total demand in the economy.
When the economy grows, consumer demand for goods rises — firms need more workers to meet this demand, increasing labour demand across the economy.
Question 5 of 20
Wage factors are often more influential than non-wage factors in determining long-term job satisfaction.
Non-wage factors are often more influential in the long term — job satisfaction, career prospects, and personal fulfilment matter more to workers over time than pay alone.
Question 6 of 20
The length of training required has no effect on occupational choice.
Training requirements significantly influence choice — some workers prefer roles requiring minimal training, while others invest years in preparation (e.g., surgeons, pilots) for higher future rewards.
Question 7 of 20
If labour demand increases while supply stays the same, the equilibrium wage rate will rise.
Greater demand for workers at the existing wage creates a shortage — firms bid up wages to attract workers until a new, higher equilibrium is reached.
Question 8 of 20
Private sector workers generally have less job security than public sector workers.
Private firms face market pressures and may downsize rapidly during downturns — as seen with Citibank and JP Morgan during the 2008 financial crisis, where mass redundancies occurred.
Question 9 of 20
An electrical engineer becoming an expert in their field is an example of specialisation of labour.
Developing deep expertise in a specific profession — rather than being a generalist — is the definition of labour specialisation.
Question 10 of 20
The supply of labour excludes people in full-time education.
Full-time students are not available for work — they are not part of the active labour supply even if they are of working age.
Question 11 of 20
The level of danger associated with a job is a non-wage factor.
Firefighters and construction workers face higher physical risks than office workers — the risk level affects job attractiveness and often justifies compensating wage differentials.
Question 12 of 20
Greater job security and better pensions are advantages of working in the public sector.
Public sector employment is less volatile than private sector — workers are less likely to be made redundant and typically receive defined-benefit pensions.
Question 13 of 20
Workers who specialise in narrow tasks always feel highly motivated and engaged.
Repetitive specialised tasks can cause boredom, alienation, and reduced motivation — specialisation does not automatically lead to job satisfaction.
Question 14 of 20
The equilibrium wage rate is where the demand for labour equals the supply of labour.
Just like any market, the wage rate settles at the point where the quantity of labour demanded by firms equals the quantity supplied by workers.
Question 15 of 20
An individual's choice of occupation is influenced by both wage and non-wage factors.
Workers consider both financial rewards (wages, bonuses, commissions) and non-financial aspects (job satisfaction, career prospects, work environment) when choosing a job.
Question 16 of 20
More women joining the workforce has diversified the workforce and increased economic output.
Rising female labour force participation has expanded the supply of labour — increasing economic output and contributing to growth.
Question 17 of 20
Changing social attitudes, such as increased female participation, affect the composition of the workforce.
As social norms evolve — e.g. more women pursuing careers — the labour supply increases and becomes more diverse.
Question 18 of 20
More experienced workers typically earn higher wages than less experienced workers.
Experience increases a worker's productivity and value to employers — creating stronger individual bargaining power and justifying higher pay.
Question 19 of 20
Profit-related pay is an additional payment based on the firm's profit.
Profit-related pay links worker remuneration to firm performance — e.g. partners in a law firm receiving 15% of annual profits.
Question 20 of 20
A worker switching from being a coal miner to a software developer is an example of high occupational mobility.
Moving between very different industries requires significant retraining — this illustrates both the possibility and the challenge of occupational mobility.