2.2 aggregate demand Flashcards

1
Q

aggregate demand formula

A

C + I + G + (X-M)

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2
Q

downward slope of ad curve causes

A

-higher prices lead to fall in the value of real incomes so goods and services become less affordable
-high inflation means foreign goods seem relatively cheaper so more exports and deficit on the current account
-high inflation means interest rates will be high which will discourage spending

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3
Q

consumer spending

A

-how much consumers spend on goods and services
-largest component of ad and most significant to economic growth
-makes up over 60% of gdp

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4
Q

disposable income

A

the amount of income consumers have after taxes and social security charges have been removed

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5
Q

marginal propensity to consume

A

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

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6
Q

marginal propensity to save

A

proportion of each additional pound of household income that is used for saving

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7
Q

influences on consumer spending

A

-interest rates, low interest rates means more spending
-consumer confidence, high confidence levels means more spending as people are not so worried about the future
-wealth effect, when there is a rise in the price of houses people feel wealthier so they spend more

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8
Q

gross investment

A

the amount a firm invests in business assets that does not account for depreciations

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9
Q

net investment

A

-the actual addition to capital stock of an economy after depreciations have been considered
-net investment = gross investment - depreciation

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10
Q

influences on investment

A

-the rate of economic growth, if growth is high firms make more revenue due to higher rates of consumer spending, more profits to invest
-business expectations and confidence, if they are cleft a high rate of return they will invest more
-interest rates, investment increases as interest rates fall
-government and regulations, rate of corporation tax could affect investment

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11
Q

fiscal policy

A

-governments use fiscal policy to influence the economy and involves changing government spending and taxation
-demand side policy
-spend on public goods and merit goods as well as welfare payments

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12
Q

discretionary fiscal policy

A

implemented through one off changes

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13
Q

automatic stabilisers

A

policies which offset fluctuations in the economy, include transfer payments and taxes and are triggered without government intervention

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14
Q

expansionary fiscal policy

A

involves increasing spending on transfer payments on boosting ad or reducing taxes

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15
Q

contractionary fiscal policy

A

-decreasing expenditure on purchases and transfer payments
-tax may increase
-reduces the size of the government budget deficit

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16
Q

net trade

A

x - m (exports minus imports)
the value of the current account balance of payments
positive indicates a surplus
negative value indicates a deficit

17
Q

main influences on net trade balances

A

-real income, consumers have higher income they will consume more and import more
-exchange rates, strong pound imports cheap exports dear
-state of the world economy, decline in economic growth in one of its markets means there will be a fall in exports because consumer spending in those economies fall
-degree of protectionism, tariffs, quotas, regulations