AD influence

Question 1

Increase Consumer expenditure (5)

Answer 1

• Increase Real disposable incomes
• An increase in wealth
• An increase in consumer confidence
• A fall in rates of interest
• Expectations of inflation

Question 2

Increase investment (8)

Answer 2

• An increase in the level of real disposable income
• An increase in current profit levels
• A fall in corporation tax rates
• A fall in the rate of interest
• Faster rate of advances in technology
• A fall in the price of capital equipment
• When there is a significant reduction in spare capacity
• Increasing business confidence (expectations of increasing profits in future)

Question 3

Increase in government spending (5)

Answer 3

• The amount of tax revenue being raised.
• Previous spending commitments by government
• An increase in the level of borrowing the government is prepared to undertake
• Policy decisions to influence macroeconomic performance
• An increase in the level of intervention required to correct for market failure

Question 4

Increase in net exports

Answer 4

• Fall in real disposable income at home (domestic)
• An increase in disposable income abroad (foreign)
• A fall in relative price of exports
• An increase in relative price of imports
• A depreciation (fall) of the exchange rate