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
Collective bargaining is when individual workers negotiate their own wages directly with management.
Collective bargaining involves the trade union negotiating on behalf of all workers as a group, which is more effective than individual bargaining.
Question 2 of 15
Industrial action such as strikes can disrupt production and reduce a firm's output.
When workers strike, production halts or slows significantly, causing losses for the firm through disruption of operations and supply chains.
Question 3 of 15
A strike is when workers refuse to perform any tasks outside their regular contracted hours.
That describes an overtime ban. A strike is when workers stop working entirely to compel employers to meet their demands.
Question 4 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 5 of 15
A disadvantage of strikes for workers is the loss of income during the period of the dispute.
Workers on strike typically do not receive their normal wage, which is a significant personal financial cost of industrial action.
Question 6 of 15
The threat of industrial action alone can sometimes persuade employers to negotiate better terms.
Employers may prefer to negotiate to avoid the costs and disruption of a strike, even without the action actually taking place.
Question 7 of 15
Trade union membership is compulsory for all workers in the UK.
Joining a trade union is voluntary. Closed shops (where union membership was compulsory) were made illegal in many countries including the UK.
Question 8 of 15
Higher union membership in manufacturing sectors is one reason why deindustrialisation leads to declining union power.
As manufacturing (which has traditionally high union membership) declines, total union membership falls, reducing overall union power.
Question 9 of 15
The success of collective bargaining is guaranteed if a union has a large number of members.
While size helps, success depends on many factors including economic conditions, employer attitudes, government policy, and union unity.
Question 10 of 15
Collective bargaining can strengthen unity and morale among workers.
When workers act together and win improvements, this builds solidarity and morale - making the union stronger for future negotiations.
Question 11 of 15
Trade unions are only concerned with wages and have no interest in workplace safety.
Trade unions also campaign for safe equipment, adequate training, and good working conditions - not just wages.
Question 12 of 15
All types of industrial action immediately result in workers losing their wages.
Workers lose wages during a strike but not necessarily during a work-to-rule or overtime ban, where they are still working (just to rule).
Question 13 of 15
For governments, a benefit of strong trade unions is that they help ensure the labour force is not exploited.
When unions effectively protect workers, governments do not need to intervene as much - reducing the burden on regulators.
Question 14 of 15
A positive outcome of successful collective bargaining includes improved wages and working conditions for workers.
Securing better pay, benefits, and working conditions is the primary goal and positive consequence of successful collective bargaining.
Question 15 of 15
Industrial action can strain labour relations and create tension in the workplace.
Disputes and negotiations can damage trust between employers and employees, creating a difficult working environment.
Practice
True / False - Workers
20 questionsQuestion 1 of 20
Division of labour increases a firm's output and competitiveness.
Greater efficiency and productivity from specialised workers means more is produced at lower cost — improving the firm's ability to compete.
Question 2 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 3 of 20
More women entering higher education and professional courses is a changing trend that may reduce the gender pay gap over time.
As more women gain professional qualifications (medicine, law, veterinary science), they enter higher-paying roles — gradually narrowing the gender earnings gap.
Question 4 of 20
Family ties always prevent workers from being geographically mobile.
Family ties can restrict mobility but do not always prevent it — the degree of restriction depends on individual circumstances and the strength of employment incentives.
Question 5 of 20
Share options are typically offered to employees of public limited companies.
PLCs have publicly traded shares — offering employees shares or share options is a common incentive in public companies to align worker and shareholder interests.
Question 6 of 20
The wage rate in a labour market is determined solely by the government.
In most markets, wages are determined by the interaction of demand and supply of labour. Governments influence wages through minimum wage laws, but do not set all wages.
Question 7 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 8 of 20
Specialisation of labour occurs when a worker becomes an expert in a particular profession.
Specialisation means a worker focuses on and masters a specific role — for example, a landscape architect or electrical engineer who develops deep expertise in their field.
Question 9 of 20
Career prospects — such as opportunities for promotion — are a non-wage factor influencing job choice.
Workers consider whether a job offers a clear path to advancement — roles with good promotion prospects are more attractive, all else equal.
Question 10 of 20
The level of challenge in a job is a non-wage factor that can affect occupational choice.
Jobs that require problem-solving and creativity provide mental stimulation and long-term satisfaction — influencing whether workers find them fulfilling.
Question 11 of 20
Higher education levels have no correlation with earnings potential.
Higher education correlates strongly with better earnings — graduates and postgraduates command higher wages because their skills are more valuable and in shorter supply.
Question 12 of 20
Piece rate pay is calculated as a percentage of sales made.
Piece rate is payment per item produced or sold — e.g. $2 per garment made. Commission is the percentage of sales value — e.g. 1% of each property sold.
Question 13 of 20
Specialised workers can command higher wages due to their expertise.
Skilled specialists are in higher demand and shorter supply — giving them stronger bargaining power and justifying higher pay.
Question 14 of 20
The labour force participation rate refers to the percentage of the working-age population actively working or seeking work.
This is the definition — it measures what proportion of the potential workforce is economically active (employed or unemployed and job-seeking).
Question 15 of 20
Improving occupational mobility helps reduce structural unemployment.
Structural unemployment arises when workers' skills don't match available jobs — retraining programmes that improve occupational mobility help workers transition to growing sectors.
Question 16 of 20
Jobs requiring thinking skills and creativity provide mental stimulation and long-term job satisfaction.
Cognitively demanding roles keep workers engaged and challenged — contributing to long-term well-being and job satisfaction beyond what wages alone can provide.
Question 17 of 20
Geographical mobility can be restricted by factors such as family ties, cost of living, and regional disparities.
Even if jobs are available elsewhere, workers may be unable or unwilling to move due to personal commitments, housing costs, or cultural ties.
Question 18 of 20
Non-wage factors only matter to low-paid workers and are irrelevant to high earners.
Non-wage factors matter to workers at all income levels — high earners also value challenge, autonomy, recognition, and career advancement, not just financial rewards.
Question 19 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 20 of 20
One advantage of a minimum wage is that it ensures fair wages and reduces exploitation of low-paid workers.
Without a minimum wage floor, some employers could pay very low wages — the minimum wage protects the most vulnerable workers from exploitation.