AD + AS Flashcards

1
Q

Determinants of Consumption (65%)

A

-Level of real, disposable income -income tax, wealth effect
-Interest rates -credit crunches, availibility
-Consumer confidence -job prospects, unemployment, Life-cycle theory of consumption, MPC
-Asset prices -wealth effect
-Household indebtness -mortgages, utilities

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2
Q

Determinants of Investment

A

-Business Confidence- -Future profit, demand, LCTC, MPI
-Corporation Tax- -Retained profit
-Spare capacity
-Competition -Increases speed of technical progress
-Price of capital
-Accelorator effect- rate of RGDP encourages more investment, cyclical in order to continuosly meet consumer demand

I- spend on capital goods by firms

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3
Q

Determinants of saving

A

-Level of real, disposable income -MPC/S
-Interest rates -High= more liekly to save
-Consumer confidence -Life-cycle theory of consumption
-Education
-Tax incentives- -ISAs

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4
Q

Government Spending

what

A

-Current- maintanence of public services
-Welfare- Benefits, pensions
-Capital- infrastructure
-Debt Interest- cost of borrowing

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5
Q

Net Exports

A

-Real disposable income abroad + home
-Exchange rates, SPICED, WIDEC
-Protectionism
-Relative inflation

Weak exchange rate Imports Dear Exports Cheap

Strong Pound Imports Cheap Exports Dear

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6
Q

Shifts in SRAS

A

SUPPY SIDE SHOCKS- Costs of production
-Wages
-Raw materials
-Oil price
-Business tax
-Import prices

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7
Q

Shifts in LRAS

A

Q^CELL
-Labour Productivity
-Investment
-Infrastructure
-Quantity of Labour
-Competition
-Supply side policies

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8
Q

Output Gaps

A

Negative- where actual output less than potential
-Deflationary position

Positive- where actual output is greater than potential
-Inlationary position, demand pull inflation
->HOWEVER Keynsian model

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9
Q

Wealth effect

A

Purchasing power of income increases or decreases in response to price chage (assets or commodoties)

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10
Q

Trade effect

A

Reduction in price increases competitiveness of exports on global marketplace

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11
Q

Interest effect

A

Inverse relationship to AD, kept low to stimulate spending, borrowing and investment

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12
Q

Outward Shifts in AD

A

-Expansionary Fiscal policy
Boost growth
Reduce Unemployment
Increase Inflation (demand pull)
Redistribute income (welfare payments)
->Multiplier effect

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13
Q

Supply Side Policies

Shifts in AS

A

What- policies designed to increase the productive potential of an economy

Interventionist (direct)
-Gov spend on education, training
-Gov spend on infrastructure
-Subsidies

Market based (indirect)
-Tax reform
-Labour reform (Union power, benefits)
-Competition

Shifts LRAS

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14
Q

Inward shift of AD

A

-Contractionary
Reduce government expenditure (balance budget)
Redistribute income (Tax)
Reduce trade deficit

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