AG TEST REVISION Flashcards
What is consumption ?
The action of using up a resource in an economy
What are things that increase consumption ?
An increase in real incomes
Reduction in taxes
Decrease in interest rates
Subsidies and incentives
What things could reduce consumption ?
Increases in taxes
Changes in the economic climate
Changes in exchange rates
Reduction in national investment
What is investment ?
When firms spend money on capital goods like machinery , infrastructure , resources
What may increase investment
Increase in subsidies / support
Decrease in labour costs
Decrease in resources cost
What may decrease investment ?
Increases in labour resources
Increases in resources cost
Increase in interest rates
What is the accelerator theory ?
The relationship between planned capital investment and the rate of change of national income
E.G:
1. Rapidly growing industry = High demand
2.The firm uses pre existing capacity to use / sell
- Expected high demand increases spending + tech to increase the supply capacity to the market
4.Causes a bigger percentage change in demand
What are the key parts of the circular flow of income model ?
Households - Income via wages . Buy goods off businesses
Businesses - Hire land labour capital when making products . Sell it for £££
GOVT - collect taxes to fund public services . State spending too
External sector - The UK imports from other countries
What are injections in economics ?
The introduction of income into the circular flow model . Things that put money into a countries economy
What are leakages / withdrawals in economics ?
The process of taking money out of the circular flow model of a countries economy . For example when the GOVT imports products from overseas
What is aggregate demand ?
The total level of planned expenditure on the goods + services produces in an country
What are the components of aggregate demand ?
C ) - Household spending
I ) - Capital investment spending
G ) - GOVT consumption / public services
X ) - Exports of goods and services
M ) - Imports of goods and services
What is the wealth affect in Aggregate Demand ?
When price increases , the value of income falls for consumers , resulting in less purchasing power . VICE VERSA
What is the balance of trade in Aggregate Demand ?
If one country increases the price of a product / service , it could make other imports cheaper . Resulting in a fall of exports and an increase in imports
What is the interest rate effect in Aggregate Demand ?
An increase of a price will increase inflation - and increase in demand for money causes an increase in demand for a loans interest rate
What are some examples of a fall in aggregate demand ?
Fall in exports
Cuts in GOVT spending
Decline in household wealth
Higher interest rates
What are some examples of increases in aggregate demand ?
Depreciation in interest rates
Cuts in direct taxes and indirect taxes
Increases of house prices
Expansion of credit and reduction in interest rates
What causes shifts in the aggregate demand curve ?
Changes to monetary policy - ( change in interest rates , supply of money and credit )
Changes to GOVT fiscal policy - ( changes in taxation levels , spending and borrowing )
Business and consumer confidence - ( Capital investment spending , how willing people are to buy )
What are some external shocks to aggregate demand ?
Recession / slowdown or boom in trading with countries
Financial crisis / lower levels of credit to businesses
Large change in commodity prices for a country
Slump in housing market
What are some factors that affect consumer spending ?
Interest rates
Job security
Availability of credit
What is saving in economics ?
The process of postponing consumption
What are somethings that will increase saving ?
Decreases in taxes
Increases of interest rates
Consumer confidence ( If low then they are more willing to save )
Availability of credit ( If low then they will try to save more )
What are some factors that decrease saving ?
Decreases of interest rates ( receive less from banks when in an account )
Increase of taxes
Increased costs of raw materials and labour
If credit is available then they will use others money than their own
What is the need of savings in an economy ?
Business survival - Used as finance for takeovers + capital investment projects
Buffer for consumers - Saving can reduce consumption during tough times - allows them to reduce debt ( mortgage ) - use savings as for retirement income
Funding investment - Banks need deposits for investment
Why might high saving be a problem for an economy ? ( Too much saving )
There will be insufficient spending in an economy - less money put back into the circular flow model
What is the multiplier theory ?
The relationship between a change in aggregate demand and the resulting generally larger change in national income
What is net trade ?
The difference between a country’s exports and its imports . ( X - I )
What are imports ?
when a country brings in goods and services from another country .
What are exports ?
A product or service sold to another country
What is trade surplus?
The amount by which the value of a country’s exports exceed the value of its imports
What is trade deficit ?
When a country imports goods and services more than they export them
What is a closed economy ?
When a country choses not to participate in international trade . E.G Morocco , Vietnam , Brazil
What is an open economy ?
A country that participates in international trade
T
