pre learning week 5 Flashcards
what is marginal propensity to consume
the proportion of an increase in income that gets spent on consumption
what happens to AD when (X-M) decreases
it will shift to the left
what happens to AD when (X-M) increases
it will shift to the left
what is the terminology used for X
export revenues
what is the terminology used for M
import expenditure
what are the 5 factors that affect whether net imports increase or decrease.
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
what is the equation for aggregate demand
AD = C + I + G + (X - M)
what happens if there is a boom in disposable incomes abroad
they are likely to import more goods - demand for exports will increase - increases export revenues - AD shifts to the right
what happens if there is a recession in disposable incomes abroad
they are likely to import less goods - demand for exports will decrease - decreasing export revenues - AD shifts to the left
what happens if there is a boom in disposable income at home
our import expenditure rises - AD shifts to the left
what happens if there is a recession in disposable income at home
our import expenditure falls - AD shifts to the right
what acronym is used for a strong exchange rate
SPICED
what does SPICED stand for
strong pound imports cheap exports dear
what acronym is used for a weak exchange rate
WIDEC
what does WIDEC stand for
weak imports dear exports cheap
what happens when there is a strong exchange rate
imports are cheap so demand rises - exports are expensive so demand falls - AD will shift left due to a fall in (X - M)
what happens when there is a weak exchange rate
imports are expensive so demand falls - exports are cheap so demand rises - AD will shift right due to a rise in (X - M)
what happens when there is strong protectionism abroad
we may be prevented from reaching international markets with our exports - reduces the revenue we can make - AD shifts left
what is protectionism
having strong protectionism means putting in place tariffs and quotas on exports.
what happens when there is a weak protectionism abroad
it may be easier to reach international markets with our exports - increases export revenues - AD shifts right
what happens when there is strong protectionism at home
the value of expenditure is low - high tariffs and quotas from abroad - reduces expenditure - AD shifts right
what happens when the UK’s relative inflation level is higher than other countries
our exports are less competitive - demand for our exports is lower - export revenue is lower - AD shifts left
what happens when the UK’s relative inflation level is lower than other countries
our exports are more competitive - demand for our exports is higher - export revenue is higher - AD shifts right
what shifts AD to the right
exports increasing and/or imports decreasing (as these both increase the value of the bracket)
