Household Expenditure and Savings

1090 Words5 Pages
Introduction
Understanding the response of personal savings and expenditure to changes in the interest rates is a central to many issues in the economic policy. If personal savings decline as a result, the overall increase in the national savings would be less than the reduction in the budget deficit. Alternatively, contractionary monetary policy generally causes interest rates to rise. It personal saving increase as a result, the corresponding fall in consumer expenditure helps to slow the economy.
Household behaviour is the lifecycle model, which assumes that people determine their consumption and savings at each point in their lives by looking forward to their future income and desires, rather than considering only their current
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The Monetary Policy Committee is chaired by the governor of the Reserve Bank. It consists of eight members of the Reserve Bank, the Governor, three deputy governors and four senior officials of the Reserve Bank.
The main refinancing operation is the weekly seven day repurchase auction, which is conducted with the commercial banks, at the repo rate as determined by the MPC. The Reserve Bank lends funds to the banks against eligible collateral.
When the MPC decreases interest rates or are low, the allows households to have more access to money, contrary, the financial institutions make a very low profit, so for financial institutions to make profit, they provide and promote many loans so that many households may acquire funds and financial institutions benefit from that.
If the MPC decreases the interest rates, it promotes households to spend more and to have more access to funds. While on the other hand, the Department: National Treasury is encouraging households to save, from a minor age (legal guardian signature) but applicable from the age of 21 may invest in a fixed rate retail savings bond that starts from R1 000 to R1 000 000 with investments compounded on the 31 March and 30 September, and compounded monthly (only for persons over the age of 60).
Conclusion
It is clear that the change in interest rates has a positive on households on both occasions. When interest rates decrease household have more
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