2.2 - Aggregate Demand Flashcards
What are movements along the AD curve caused by
A change in the average price level (inverse relationship)
What is the savings ratio
the ratio of savings to income (S/Y)
What are wealth effects
happen if asset prices rises and consumers feel as though they have more money, they may spend more if share prices or property prices rise
What is gross investment
amount of investment carried out and ignores the level of depreciation
What is net investment
gross investment minus the value of depreciation
How do real incomes influence net trade
when UK real incomes are high, increased imports as people demand more goods and services and the UK cannot meet the needs. However if the increase in real income is due to export led growth then net trade will increase
How does the price elasticity of imports affect the influence exchange rates have on net trade
price elastic imports mean a rise in price causes a large fall in demand so the value of imports will fall. If imports are inelastic, a rise in price will cause a large fall in demand so the value of imports will fall
How do high price influence net trade
high prices in the UK mean goods are less competitive compared to international goods since people make decisions based on price. Volume of exports will decrease and imports will increase. Prices are affected by inflation rate, higher UK inflation rate than other countries mean prices rise quicker If PED is elastic, higher prices cause a fall in net trade