AD Flashcards
1
Q
What factors affect C
A
Real disposable income
Wealth (wealth effect - more confident, more access to borrowing)
Consumer confidence and expectations
Rate of interest
2
Q
What is the accelerator effect
A
Increase in rate of change of rGDP incentivises firms to invest more into better quality and quantity of capital
3
Q
Why does AD slope downwards
A
Real balance effect (when PL falls, purchasing power up, real income up)
Net export effect (when PL falls, our goods are more price competitive)
Interest rate effect (PL up, more demand for borrowing, IRs up, C and I down)
4
Q
What factors affect investment
A
Interest rates
Business confidence
(Substitutability of FOP)
