AD + AS Flashcards
Determinants of Consumption (65%)
-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
Determinants of Investment
-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
Determinants of saving
-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
Government Spending
what
-Current- maintanence of public services
-Welfare- Benefits, pensions
-Capital- infrastructure
-Debt Interest- cost of borrowing
Net Exports
-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
Shifts in SRAS
SUPPY SIDE SHOCKS- Costs of production
-Wages
-Raw materials
-Oil price
-Business tax
-Import prices
Shifts in LRAS
Q^CELL
-Labour Productivity
-Investment
-Infrastructure
-Quantity of Labour
-Competition
-Supply side policies
Output Gaps
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
Wealth effect
Purchasing power of income increases or decreases in response to price chage (assets or commodoties)
Trade effect
Reduction in price increases competitiveness of exports on global marketplace
Interest effect
Inverse relationship to AD, kept low to stimulate spending, borrowing and investment
Outward Shifts in AD
-Expansionary Fiscal policy
Boost growth
Reduce Unemployment
Increase Inflation (demand pull)
Redistribute income (welfare payments)
->Multiplier effect
Supply Side Policies
Shifts in AS
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
Inward shift of AD
-Contractionary
Reduce government expenditure (balance budget)
Redistribute income (Tax)
Reduce trade deficit
