Macro Aggregate demand and supply Flashcards
what are the 3 injections into the economy
investments
government spending
exports
what are the 3 leakages out the economy
savings
taxes
imports
what is national income?
the total value of the output, expenditure or input of an economy
what is national expenditure
value of spending by households on goods and services
what is national output
value of the flow of goods and services from firms to housholds
what is aggregate demand
total demand for a country’s goods and services at a given price level and given time period
aggregate demand equation?
AD = C + I + G + (X-M)
define consumption
use of goods and services to satisfy wants
define disposable income
income that households have to devote to consumption and saving
3 examples of influcences of consumption
disposable income
wealth (stoke accumulated from past savings)
rate of interest
what is GDP
value of all final goods and services produced within a country’s borders during a specific period, typically a year
what does national expenditure show?
how resources are being used
(what proportion to consumption and what to investment)
what is interest
the cost of borrowing/reward for lending
what is investment?
expenditure by firms on capital stock
4 different types of government spending
-capital spending
-welfare spending
-debt interest payments
-current spending
example of current government spending
on maintenance of key public services and public sector wages
examples of capital government spending
infrastructure projects (airports, bridges, roads)
examples of welfare government spending
benefits and pensions
examples of government debt interest payments
anytime governments take on more debt there is interest paid to other countries
budget surplus?
tax revenue > government spending
budget deficit?
tax revenue < government spending
what are net exports?
exports - imports
what are the 5 important determinants of net exports?
- real disposable income
-real disposable income
-exchange rates
-protectionism
-inflation levels at home
what happens when exchange is rates are weak
WIDEC
Weak : Imports Dear Exports Cheap
what happens when exchange rates are strong to
SPICED
Strong Pound: Imports Cheap Exports Dear
6 determinates of investment
Intrest rates
Business confidence
Corporation tax
Spare capacity
Level of competition
Price of capital
What is the relationship between price level and RGDP
Inverse
What is the wealth effect and which axis and AS AD diagram does it effect
As price level decreases the purchasing power of income increase people are richer making them more likely to increase consumption
It effects the price level
What is the trade effect
As the price level decreases exports become less competitive as domestic become more competitive. X will increase exports will increase
What is the intrest effect
As price level decrease intrest rates will be kept lower with will stimulate more consumption and investment and reduce the value of the pound so exports will increase
When much investment increase 3
-reduction in interest rates
-Increase in business confidence
- high spare capacity level
The impact of oil prices on SRAS
When oil prices increase COP for ALL firms will increase shifting SRAS to the left
Effect of import prices increasing on the SRAS and economy
If there is a weak exchange rate and import prices increases there will be higher COP
SRAS shifts left
What is YFE om LRAS
full employment of factors of production
Maximum level of output an economy can produce at
Which model has both short and long run
Classical
What is SRAS determined by
Cost of production
4 most important factors that will shift SRAS
Wages
Oil prices
Import prices
business taxes
Raw materials
What is classical LRAS position determined by simply
The quality and quantity of factors of production
Q2 CELL
Quality
Quantity
Capital
Enterprise
Land
Labour
4 things that would cause LRAS to shift right
Increase labour productivity and quantity
Increased investment
Increased infrastructure
Increased competition
Potential things that would shift LRAS left
Low productivity
Mass capital depreciation
War/conflict/natural disaster
Death/immigration aboard
Less/little technological advancement
Which model believes in government intervention and why and what suggestion to fix
Keynesian
Periods of recession could not resolve on its own and required fiscal policy, increased government spending and reduction in tax even borrowing
a
