Aggregate Demand Flashcards
What is aggregate demand?
Aggregate demand is the total of all demand in the economy at any given price.
What is consumption?
Consumption is total expenditure by households.
What is average propensity to consume?
APC is the proportion of total income that is consumed.
What is marginal propensity to consume?
MPC is the proportion of additional income that is consumed.
What factors affect consumption?
Interest rates, Consumer confidence, Wealth effects, Inflation, Composition of households, Availability of credit
What is saving?
Saving is the portion of a household’s disposable income which is not consumed.
What is investment?
Investment is the addition to the capital stock of the economy.
What is capital consumption?
Capital consumption is the decrease in the value of the capital stock over time as it wears out and is used up.
What factors affect investment?
Interest rates, Accelerator theory, Costs, Business confidence, World economy, Availability of credit, Retained profit, Government regulations
What is the accelerator theory?
The accelerator theory is the idea that investment is linked to changes in output or income in the economy.
What is the capital-output ratio?
The capital-output ratio is the amount of capital needed in the economy to produce a given quantity of goods.
What is the equation for investment according to the accelerator theory?
I = a (Yt - Y(t-1))
What is retained profit?
Retained profit is the remaining profit left after dividends and taxes have been paid.
What is net exports?
Net exports are the value of exports minus the value of the imports.
What factors affect net exports?
Price, Real income, Exchange rate, World economy, Protectionism, Non price factors.
