Aggregate demand Flashcards
Net investment vs gross investment
Net = Investment outside of depreciation
Gross = total investment ignoring depreciation
Influences on gov spending
1.Trade cycle - more spending in recession to counter unemployment
2.Fiscal policy - decides level of spending
Influences on net trade
1.Real income - high real income= more imports becomes demand increase and uk can’t meet needs
2.Exchange rate- strong pound= more imports less exports
3.Regulations
4.Prices
Influences on investment?
1.Economic growth
2.Consumer confidence - prepare for future growth
3.Demand for exports
4.Intrest rate
5.Cost
6.Regulations
Income effect
Price rise but incomes don’t straight away so real income decrease
Net exports?
Exports - imports
Intrest rate effect
Prices rise means firms increase wages and demand for money increase so people save and firms don’t invest.
Substitution effect?
As prices rise foreigners don’t spend money on the uk and uk residents buy from abroad as it’s cheaper. Imports rise and exports decrease.
Affects on spending?
1.Disposible income
2.Wealth
3.Consumer confidence
4.Taste/trends
5.Interest rates
What is wealth?
The total value of assets you own
What is disposible income?
The income people have available to spend
What is the wealth effect?
Where people have higher wealth so they consume more despite the fact the disposible income they have is the same
What is Government spending
Spending by government on providing public goods and services and wages and benefits.
What is investment
Money spent by business in capital goods
What is consumption?
Consumer spending on goods and services in the economy
