Evaluation Points Flashcards
1
Q
Evaluate ‘government spending increases real GDP’
A
- time lag of spending e.g. infrastructure time to be built
- ricardian equivalence theory - consumers save in anticipation of a future tax increase to fund the government spending
2
Q
Gravity Trade Theory
A
- countries in close proximity will continue to trade with each other out of habit regardless of new tariffs or trading blocs
3
Q
No Wealth Effect
A
- ricardo sousa has shown that the wealth effect on consumption in the UK is virtually 0 because almost 50% of the UK population rents rather owns their own home
- this means that as house prices increase, people will pay more rent and therefore consume less
4
Q
National Debt due to Gov Spending
A
- gov spending may not increase real GPD if it increases national debt - this will trigger contractionary fiscal policy
- in 2025, UK is forecast to spend approx £105 billion on debt interest
