Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics Test - Chapter 9 > Aggregate Expenditure > Flashcards

Aggregate Expenditure Flashcards

1
Q

What is aggregate expenditure?

A

Defined as the sum of consumption expenditure, planned investment expenditure, government expenditure and expenditure on our net exports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Formula for aggregate expenditure?

A

AE = C + I + G + (X-M)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Consumption expenditure?

A

Largest component of AE (56% of aggregate expenditure)

Household spending

Categorised in three ways: durable (brown and white goods) (+3 years), non durable (food) (<3 years) goods and services (education, transport, recreation).

Goods are tangible, services intangible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Factors affecting consumption expenditure?

A 
Level of disposable income
Cost of credit (interest rates)
Current stock of wealth 
Consumer confidence 
Government economic policy

Disposable income - income after tax.
People with more money gave a lower % of money spent.

Cost of credit
Decrease in interest rates - increases investment spending.
Increase in interest rates - decreased investment spending.

Household of “stock” of wealth
High value of assets = more spending, decrease = less spending.

Consumer confidence
Concerned with changes of economic growth, interest rates and exchange rates.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Planned investment?

A

Expenditure on capital equipment, factories and tools ➡️ referred to as planned business expenditure.
Housing investment is expenditure on new housing.
Most volatile sector of the AE.
Consists of business and housing investment and inventories ➡️ inventories aren’t included in the formula for planned investment.
Private investment accounted 16%-26% of GDP in 2015.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Government expenditure?

A

Consists of two types of spending ➡️ G1 and G2.
Current spending (G1) - expenditure on a day to day basis ➡️ health, social welfare, defence and education.
Capital spending (G2) - machinery and infrastructure (roads and railways).
Government expenditure has accounted for 22% of GDP,
It can be used to stabilise macroeconomic fluctuations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Net exports?

A

Value of goods and services sold overseas - value of goods and services bought overseas.
Works out how much we spend in Australia.
0.4% of our GDP.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the multiplier?

A

One mans spending is another man’s income - until the change in income is reduced to zero.
1 divided by MPS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Macroeconomic equilibrium?

A

Occurs when the level of expenditure in the economy exactly equals the level of output produced, and income from that production.
Meaning there’d be no tendency to change levels of output, income or expenditure.
Expressed as the sum of..

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

APC and APS

A

APC - proportion of total income which is spent on consumption.
APS - proportion of total income which is saved.

APS + APC = 1.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Factors affecting planned investment expenditure?

A

Interest rates
Government policies
Profitability
Technology

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Factors affecting government expenditure?

A

Economic policy objectives ➡️ social policies, health and education.

Automatic changes due to the business cycle.

Stabilises macroeconomic fluctuations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Factors affecting net exports?

A 
Cyclical factors (e.g. Chinese, Australian growth)
Structural factors (e.g. Exchange rates, TOT, international competitiveness)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does the 45 degree line show us?

A

Planned expenditure = total income.

Aggregate expenditure = aggregate output.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

MPC? Marginal prosperity to consume.

A

Ratio of any change in income that is spent on consumption.

Change in C / Change in Y.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

MPS? Marginal propensity to save.

A

Any change in income that is saved.

Change in S / Change in Y.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Consumption function formula?

A

C = a + bY.

C equals consumption spending.
A is the minimum spent if income was zero.
B is the rate of spending.
And Y is income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

AE %’s

A

Consumption - 56%, planned investment 21%, government spending 23%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are three types of economic indicators?

With an example.

A

Leading - building approvals, share prices.

Coincident - retail prices, interest rates.

Lagging - unemployment levels, consumer debt levels.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the formula of the multiplier?

A

1 divided by the MPS

OR

1 divided by 1 - MPC.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What influences investment levels in Australia?

A
  • Interest rates, if they’re higher (people save), lower (spend).
  • levels of confidence within an economy.
  • and the level of people’s income (usually, when people have more money they tend to save - yet also spend more).
22
Q

Recession?

A

Occur quicker than upswings.

Increases uncertainty, high savings, low economic growth.

23
Q

Boom?

A

Higher employment rates, confidence within an economy and imports are higher.

Economic activity is above average.

24
Q

Trough?

A

Levels of aggregate expenditure below an economy’s potential.

Slower growth rates, low interest rates.

25
Q

Upswing?

A

Levels of expenditure, output and income all increase.

Economic activity is rising.

26
Q

Savings and investment supposedly are equal in the circular flow - why isn’t this considered a reality?

A

Nothing in the circular flow is equal.

People tend to save and invest at different times and earn different amounts of income compared to one another.

27
Q

Keynes theory on Aggregate Expenditure?

A

Fluctuations in spending could have short term effects on output and employment.

Governments should spend more when we are in a recession to boost economic activity.

28
Q

Consumption function?

A

Y = C + S

Based on the relationship between the level of disposable income (households) and the level of consumption and saving.

29
Q

What does consumption spending consist of?

A

Durable goods - white and brown goods.
Non-durable - less than 3 years.
Services - education.

30
Q

What is the equilibrium in the CFOI model?

A

S + T + M = I + G + X

Income = output.

31
Q

The slope of the consumption function is determined by..

A

The MPC.

32
Q

When savings is in negative - what do they call it?

A

Disaving.

33
Q

What is CPI?

A

-

34
Q

What is GDP?

A

-

35
Q

45 degree line shows..

A

Where planned expenditure = total income.

When the consumption function intersects with this line - the economy is in equilibrium.

35
Q

Point A? (On the 45 degree line graph..)

A

Where the two lines intersect, when consumption expenditure = the level of income.

Also know or classified as the breakeven point.

Being below = disaving.
Being above = saving more money.

36
Q

The size of the MPC.

A

Dependent on the attitudes of consumers (whether or not they’re saving or spending).

If there’s an increase in spending (income) - the consumption function is steeper.

37
Q

What does the consumption function assume?

A

No government or overseas sector.

People can either spend or save their disposable income.

38
Q

Formula for the consumption function?

A

C = a + bY.

A = aggregate spending levels if consumers had no income.

B = consumption changing as income rises.

39
Q

Equation for MPC?

A

Change in C divided by a change in Y.

40
Q

Equation for MPS?

A

Change in S divided by a change in Y.

41
Q

Consumption function: graph axis.

A

Consumer spending (Y), Level of disposable income (X).

42
Q

Full aggregate expenditure model graph

AND

Consumption function graph.

A

-

43
Q

Macroeconomic equilibrium is where the..

A

Aggregate expenditure line intersects with the 45 degree line.

44
Q

Aggregate expenditure and the business cycle?

A

Expansion or boom = aggregate expenditure rises.

Recession or contraction = aggregate expenditure lowers.

45
Q

Size of the multiplier?

A

Determined by factors that affect the marginal propensity to consume, things that restrict the size include (leakages):
Investment
Taxation
Imports

46
Q

Affects on the MPS/MPC and it’s steepness..

A

If savings increase MPS curve is steeper vice versa.

47
Q

TOT and exchange rates on net exports..

A

TOT (net exports):

Rise in the TOT, increases net exports – export income rises, import income falls.

Decrease in the TOT, decreases net exports – export income falls, import income rises.

Exchange rates (net exports):

Rise in AUS dollar – imports are cheaper, exports become less competitive (decreases our net exports).

Decrease in AUS dollar – we become more competitive, imports are more expensive (increases our net exports).

48
Q

Nominal IR and Real IR

A

Current rate of interest

Takes inflation into account

49
Q

Tariffs and quotas on net exports..

A

Tariffs - limit imports overseas.

Quotas do the same - if you want a particular amount of something.

Economics Test - Chapter 9 (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions