Question

Which of the following best summarizes how the use of a credit card for purchases instead of cash can change one's spending behavior?

1) Spending behavior does not matter as long as you pay off the credit card balance each month.
2) Studies show that there is no change in spending behavior whether a person uses cash or credit.
3) People typically spend less when they know that they are earning credit card 'rewards'.
4) Studies show that consumers typically spend more when using credit as opposed to cash purchases.

Answer 1

Consumers typically spend more when using credit cards due to the deferred payment and potential rewards, even though credit cards represent short-term loans and not an increase in money supply. OPTION a is answer

Step-by-step explanation:

The question concerns how the use of a credit card for purchases instead of cash can change one's spending behavior. Studies indicate that consumers typically spend more when using credit compared to cash. The reason is psychological; when people use credit cards, they are less likely to feel the immediate impact of spending money, since the payment is deferred.

Moreover, credit card rewards can incentivize spending to earn benefits such as air miles, which might lead people to spend more than they would otherwise.

It is important to understand that credit cards represent a form of short-term loan rather than an increase in one's money supply. Effective management of a credit card involves paying off the balance each month to avoid interest charges and potential debt accumulation. It's a tool for convenience a nd building credit, but it requires responsible financial behavior to prevent adverse effects on one's finances. OPTION a is answer