knowledge Flashcards
equation for aggregate
C+I+G+(X-M)
consumer expenditure + investment + government spending + (exports-imports)
what is the interest rate effect
if price level falls
decrease in demand for money
fall in interest rate
increase in AD
determinants of consumer expenditure
- real disposable income
- household wealth
- interest rates
difference between income and wealth
income is flow of money into FOP
wealth is value of stock of assets
consumer confidence
low unemployment
greater job security
increase in household wealth
- make people more confident in future them more likely to spend than save
distribution of income and MPC
higher income are more likely to save than lower income
- more likely to spend high proportion of income
- low income have higher MPC
determinants of investment
-interest rates
-business confidence / expectations
-increase im growth rate of real GDP
- corporate tax rates
- current capacity rates
- price of capital
- advances in technology
net exports theory
X>M = trade surplus
X<M = trade defecit
SPICED = strong pound IMPORTS^ cheaper EXPORTS dearer
DECREASE AD AND INCOME
——-
weak pound IMPORTS dearer EXPORTS^ cheaper INCREASE AD AND INCOME
Determinants of net exports
– International competition
– Exchange rates
– disposable income abroad
– Rate of inflation
what shifts, SRSAS
– Cost of production
– Quality of resources like advances in technology
-change the quantity of resources
what shifts, LRAS
– Increase in investment
– Increase in size of workforce
– Increase labour productivity
– Government policies to encourage work effort
– Advanced technology
Determinants of saving
– Level of real disposable income
– The base rate of interest at the Bank of England
– Consumer confidence
