2.2

Question 1

Aggregate Demand

Answer 1

total demand of an economy C+I+G+(X-M)

Question 2

Exports minus Imports

Answer 2

The value of current account on the balance of payments

Question 3

Disposable income

Answer 3

income consumers have left after taxes and social security

Question 4

Marginal propensity to consume

Answer 4

how much a consumer changes their spending after a change in income

Question 5

Marginal propensity to save

Answer 5

proportion of each additional pound of household income used for saving

Question 6

Influences on Consumption

Answer 6

Interest Rates - low interest means more borrowing and less saving so spending increases
Consumer confidence - high confidence means less worrying about future recession
Wealth effects - if people’s assets increase in price it makes them feel wealthier so they spend more

Question 7

Gross Investment

Answer 7

Amount a firm invests into capital not taking into account depreciations

Question 8

Net Investment

Answer 8

Addition to capital stock of an economy after depreciations

Question 9

Influences on Investment:

Answer 9

Rate of economic growth
Demand for Exports
Animal spirits
Interest rates
Access to credit

Question 10

Economic Cycle

Answer 10

Boom, Recession, Slump, Recovery, Boom

Question 11

Boom

Answer 11

economic growth is fast, real output increases

Question 12

Recession

Answer 12

real output decreases, negative growth, gov will increase spending and stimulate economy

Question 13

Fiscal Policy

Answer 13

Influencing AD by changing Government spending and taxation

Question 14

Expansionary Fiscal Policy

Answer 14

Used during economic decline Government reduces taxes to increase spending on transfer payments or on boosting AD

Question 15

Contractionary Fiscal Policy

Answer 15

Used during economic growth Government decreases spending on purchases and transfer payments and will increase tax