Aggraggregatevdemand Flashcards

1
Q

Define aggregate demand

A

The total value of planned expenditure on goods and services produced in an economy in a given period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What factors affect the level of consumption?

A

Wealth Levels
Income Levels
Future expectations of inflation
Consumer confidence
Unemployment levels
Job security

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define Investment

A

The expenditure that increases the capital stock of a country

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are factors affecting investment

A

Interest rates
Future growth and demand
Profitability
Government policies (subsidies)
Efficiency of financial system

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is current spending by the government ?

A

On transfer payments such as benefits or salaries / utility bills

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is capital spending by the government?

A

On long term spending that increases the productive capacity of the economy, eg infrastructure projects

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What factors affect the levels of government spending?

A

Cost of borrowing
Fiscal deficit/or debt targets
Levels of national debt
State of the economy
Confidence in the economy
Political bias

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What factors affect the levels of imports and exports

A

The exchange rates determines relative prices of exports & imports
The quality of goods affects international competitiveness.
Relative inflation rates affect domestic vs international prices.
Relative levels on income- higher the domestic income, the highest the marginal propensity to import.
How much spare capacity there is to supply resources. The less there is,the more raw materials will need to be imported.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are savings

A

Savings is the part of disposable income that is not spent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

True or false, investments are a form of saving.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

5 factors that affect the level of saving

A

-the interest rate
-the level of consumer confidence about the future
-job security
-inflation expections
-level of income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why do inflation expectations affect the level of saving

A

If prices are going to rise in the future, people may spend now and save later

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the accelerator process?

A

It links the growth in real income to a change in the rate of investment.
It helps to explain why investment is so volatile.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What determines relative prices

A

Exchange rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define aggregate supply

A

As is the total quantity of output firms will produce and sell at a given price level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What causes a shift in the SRAS curve

A

Business costs: labour and raw material costs may rise.
Exchange rates: the exchange rate may lead to a higher price of imports
The government can impose taxes which can incraese the cost of producing goods or services.

17
Q

What is the savings ratio

A

Savings/ disposable income X 100

18
Q

What type of relationship is between investment and AD

19
Q

What happens to investment when there is an increase in national income

A

Will see a larger proportional change in investment

20
Q

What is the multiplier

A

When a change in AD leads to a larger proportional change in national income

21
Q

How do you calculate the multiplier

A

Change in national income/ change in injection

22
Q

Explain the multiplier in terms of the CFoI

A

Injections into the economy will see a proportionally larger increase in national income
Withdrawals from the economy will see a proportionally larger fall in national income

23
Q

What is meant by AS

A

The level of real national output that firms are prepared to supply at different price levels

24
Q

What is the difference between SRAS ands LRAS

A

SRAS is when at least one factor of production is fixes
LRAS is when all factors of production can be varied

25
What are the main determinants of SRAS
The price level - changes in price level causes movements along the SRAS curve Costs of production - fall in costs of production = shift right
26
What are supply-side shocks
Unexpected events which impact the supply-side of the economy
27
How do the factors of quality and quantity of fop impact LRAS
Higher quality = higher production output Higher quality - higher productivity
28
What is factor mobility and how does it impact LRAS
The ease at which fop can be used for other purposes More mobile = the quicker the resources can be allocated to enable maximum output
29
How can supply-side shocks impact LRAS
Can shirt LRAS to the left
30
What does an increase in ad to to SR macroeconomic equilibrium
As AD increases supply extends Real output increases Price level increase
31
How does a decrease in AD impacts SR macroeconomic equilibrium
As AD falls supply contracts as firms reduce output Real output falls Price level falls
32
What is meant by SR macroeconomic equilibrium
Where AD =SRAS
33
34
What is meant by long run macroeconomic equilibrium
Where AD=SRAS=LRAS Also known as full employment equilibrium
35
How does an increase in AD impacts LRME
Would take economy beyond full capacity Real output increase Price level increases
36
How does a fall in AD impact LRME
Would see the condo my working at less than full capacity Real output falls Price level falls
37