Aggregate Demand And Supply Flashcards
What’s the formula for aggregate demand?
AD=C+I+G+X-M
What’s aggregate demand
Total demand for a country’s goods and services at a given price in a given period of time
What’s consumption?
Total spending by consumers on goods and services
How can consumption increase
Disposable income increases
Tax falls
Interest rate falls
Jobs are secure
How can consumption decrease
Disposable income decreases
Tax rises
Jobs aren’t secure
Interest rates rise
What’s investment
Spending in capital goods
What are the factors affecting investment
State of the economy
Business confidence
Real interest rates- (actual rate-inflation) if they increase investment decrease
Changes in corporation tax- if it increases Investment decreases
Changes in technology - big change = increase in investment as competition increases
What’s government spending ?
Spending by central banks and local government on goods and services
What are the factors affecting government spending
Political decision which depends on:
-state of the economy
-rising crime, wars, terrorist attacks ect.
Can alter automatically by spending on unemployment benefits
What are net exports
Exports- imports
What are the factors affecting net exports?
Exchange rate: if exchange rate decrease, British goods are cheaper abroad,foreign goods are expensive. We export more and import less so net exports increase
Real disposable income abroad: if it increase in country abroad it means thAt they have more mine to spend and import our products so net exports increase
What’s aggregate supply
Total output of the economy at a certain price level in a year
What are the factors which cause movements of the AS curve
Changes in labour costs: wages increase AS decreases
Changes in raw material or component prices: if they decrease AS increases
Changes In producer taxes or subsidies: tax increases AS decreases
Changes in exchange rate of the £: if it decreases, imports are more expensive and AS decreases
What’s the circular flow of income
Flow of Income around the economy between households and firms
What are the injections
I + G + X
