Aggregate Expenditure 2 (J) done

Question 1

aggregate expenditure defintion

Answer 1

the amount that firms, households, government and overseas plan to spend on goods and services at each level of income

Question 2

AE=

Answer 2

C + I + G + (X-M)

Question 3

consumption percentage

Answer 3

50-60%

Question 4

consumption expenditure and disposable income relationship?

Answer 4

positive (determined by employment levels)

Question 5

factors affecting consumption

Answer 5

1. level of disposable income
2. consumer confidence / expectations
3. cost and availability of credit
4. stock of personal wealth (investments, super, shares)
5. government fiscal policy

Question 6

other factors affecting consumption:

Answer 6

• real interest rates
• wage level expectations
• inflation
• economic growth

Question 7

investment percentage:

Answer 7

10-20%

Question 8

investment definition:

Answer 8

expenditure on capital goods (building and equipment) used to produce final goods and services for the future

Question 9

most volatile AE component

Answer 9

investment

Question 10

investment rises and falls according to

Answer 10

the level of risk

Question 11

factors influencing investment

Answer 11

1. business confidence / expectations
2. interest rates
3. level of past profits
4. government policy and stability
5. technilogical change

Question 12

interest and level of investment relationship?

Answer 12

inverse
(incr. interest = investing)
(decr. interest = not investing)

Question 13

what component is highly stable and why

Answer 13

government expenditure. because funds are allocated to major spending areas such as:
- health
- education
- defence
- social security

Question 14

cyclical changes in gov expenditure?

Answer 14

1. taxation (up when business cycle is up, positive relationship)
2. welfare payments (up when business cycle is low)

Question 15

volatile components of AD?

Answer 15

exports and imports, particularly in Australia as we rely on trade

Question 16

factors affecting net exports:

Answer 16

1. value of exports
2. value of imports
3. domestic growth
4. Aus imports are very elastic with respect to GDP
5. Other: exchange rates, tariffs and quotas, terms of trade

Question 17

value of exports…

Answer 17

most affected by level of world income. when world economic growth is high, demand for exports increases

Question 18

value of imports…

Answer 18

mostly affected by the level of domestic income

Question 19

domestic growth…

Answer 19

when high, demand for imports increases

Question 20

changes in the level of AE

Answer 20

change in level of planned injections will lead to a change in the level of income which is greater than the initial change in planned injections. (change is multiplied)