aggregate expenditure Flashcards
What is aggregate expenditure
Aggregate expenditure is defined asthe value of all of the completed goods and services that currently exist in a country
What is potential real GDP
The level of GDP that can be produced when the economy is at full employment or full capacity
What is potential real GDP
The level of GDP that can be produced when the economy is at full employment or full capacity
What is an import
Goods and services sold to overseas
What happens if actual GDP is above potential GDP
Economcy expeirences positve output gap
What is an export
Goods and services bought from overseas
Is Australia in a trade deficit or trade surplus
Australia has been in a trade surplus every year from 2017 -2023
What is a trade surplus
Exports are greater than imports
What is trade deficit
Imports>Exports
Four categories of aggregate expenditure
- Consumption – spending by households on goods and servicest
- Investment – spending by firms on capital equipment and/or construction
- Government spending – spending by the government on goods and services (not welfare spending)
- Net exports – the value of export income less the value of spending on imports less
Factors effecting investment expenditure
Interest Rate - when interest rates are too high, so too are repayments for equipment purchased with borrowed funds
Interest Rates represent opportunity cost - firms have the choice of using money capital for investment or some alternative purpose
Factors effecting consumption expenditure
The level of disposable income - the actual income received after tax, Medicare levy, superannuation funds. More disposable income, more consumption
Cost of credit - Interest rates influence consumption patterns. Lower interest rates will have a positive effect on aggregate consumption, as interest repayments fall take up smaller part of disposable income
