Answer to Question #241977 in Macroeconomics for vie

Question

 Summarize the budget patterns for food, clothing, luxuries and saving. 

Answer 1

Solution:

When the income received increases, then the expenditures will also increase. As it happens with food and clothes. The more income received, the more the expenditure will increase the purchasing power of normal goods, expensive foods, and luxuries. Increasing income will reduce the purchasing power that occurs in inferior goods, such as rice, cereals, and clothes that are not good. With the increase in income, the amount of taxes in force will also increase as well. If a person has additional income earned after-tax, a portion of that income will be included in savings. According to Engel's law, the budget pattern is as follows:

a. If income increases, then the presentation of expenditures for food consumption is getting smaller.

b. The percentage of expenditure on clothing consumption is relatively fixed and does not depend on income levels.

c. The percentage of consumption expenditure for home expenses is relatively fixed and does not depend on the level of income

d. If income increases, then the percentage of spending on education, health, recreation, luxury goods, and savings will increase.