2.2 - Aggregate Demand Flashcards

1
Q

What are movements along the AD curve caused by

A

A change in the average price level (inverse relationship)

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2
Q

What is the savings ratio

A

the ratio of savings to income (S/Y)

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3
Q

What are wealth effects

A

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

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4
Q

What is gross investment

A

amount of investment carried out and ignores the level of depreciation

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5
Q

What is net investment

A

gross investment minus the value of depreciation

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6
Q

How do real incomes influence net trade

A

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

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7
Q

How does the price elasticity of imports affect the influence exchange rates have on net trade

A

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

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8
Q

How do high price influence net trade

A

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

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