pre learning week 5

Question 1

what is marginal propensity to consume

Answer 1

the proportion of an increase in income that gets spent on consumption

Question 2

what happens to AD when (X-M) decreases

Answer 2

it will shift to the left

Question 3

what happens to AD when (X-M) increases

Answer 3

it will shift to the left

Question 4

what is the terminology used for X

Answer 4

export revenues

Question 5

what is the terminology used for M

Answer 5

import expenditure

Question 6

what are the 5 factors that affect whether net imports increase or decrease.

Answer 6

real disposable income earned abroad
real disposable income at home
strong or weak exchange rates
protectionism at home and abroad
relative inflation levels at home

Question 7

what is the equation for aggregate demand

Answer 7

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

Question 8

what happens if there is a boom in disposable incomes abroad

Answer 8

they are likely to import more goods - demand for exports will increase - increases export revenues - AD shifts to the right

Question 9

what happens if there is a recession in disposable incomes abroad

Answer 9

they are likely to import less goods - demand for exports will decrease - decreasing export revenues - AD shifts to the left

Question 10

what happens if there is a boom in disposable income at home

Answer 10

our import expenditure rises - AD shifts to the left

Question 11

what happens if there is a recession in disposable income at home

Answer 11

our import expenditure falls - AD shifts to the right

Question 12

what acronym is used for a strong exchange rate

Answer 12

SPICED

Question 13

what does SPICED stand for

Answer 13

strong pound imports cheap exports dear

Question 14

what acronym is used for a weak exchange rate

Answer 14

WIDEC

Question 15

what does WIDEC stand for

Answer 15

weak imports dear exports cheap

Question 16

what happens when there is a strong exchange rate

Answer 16

imports are cheap so demand rises - exports are expensive so demand falls - AD will shift left due to a fall in (X - M)

Question 17

what happens when there is a weak exchange rate

Answer 17

imports are expensive so demand falls - exports are cheap so demand rises - AD will shift right due to a rise in (X - M)

Question 18

what happens when there is strong protectionism abroad

Answer 18

we may be prevented from reaching international markets with our exports - reduces the revenue we can make - AD shifts left

Question 18

what is protectionism

Answer 18

having strong protectionism means putting in place tariffs and quotas on exports.

Question 19

what happens when there is a weak protectionism abroad

Answer 19

it may be easier to reach international markets with our exports - increases export revenues - AD shifts right

Question 20

what happens when there is strong protectionism at home

Answer 20

the value of expenditure is low - high tariffs and quotas from abroad - reduces expenditure - AD shifts right

Question 21

what happens when the UK’s relative inflation level is higher than other countries

Answer 21

our exports are less competitive - demand for our exports is lower - export revenue is lower - AD shifts left

Question 22

what happens when the UK’s relative inflation level is lower than other countries

Answer 22

our exports are more competitive - demand for our exports is higher - export revenue is higher - AD shifts right

Question 23

what shifts AD to the right

Answer 23

exports increasing and/or imports decreasing (as these both increase the value of the bracket)