Determining GDP Flashcards
Aggregate Demand
total demand for all goods+services produced by an economy in a given time period
AD=C+I+G+(X-M)
consumption
household spending on finished goods + services
determinants of consumption
pici income (positive relationship + +) price (negative relationship +,-) interest rates (cost of borrowing and reward for lending) (negative) consumer confidence (positive) wealth (positive)
investment
business spending on capital
determinants of investment
bia
interest rates (negative)
business confidence (positive)(business predictions)
access to funds (positive)(more profits)
Government spending (3 types)
transfer spending (pensions+benefits) capital spending (infrastructure) current spending (wages to civil servants)
determinants of government spending
tax revenue (positive) political decision making economic growth (transfer benefits fall) government borrowing (bond markets)
net exports
exports: goods produced domestically and sold abroad
imports: goods produced abroad and sold in domestic economy
determinants of exports and imports
economic growth (domestic/foreign) exchange rates
SRAS
the time period where full adjustment for changes in wages + price have not occured
LRAS
the AS where full adjustment for changes in wages + price have occured
Multiplier
1/(1-Marginal Propensity to Consume)
AS
the total of goods+services produced by an economy
Typical changes in costs of production (SRAS)
wages, raw materials, change in price of imports, change in government indirect taxes or subsidies
direct tax
tax on an income or profit (income tax)
