random essay sht

Question 0

define consumption

Answer 0

• spending on durable goods, non durable goods and services

Question 1

aggregate expenditure

Answer 1

• defined as total amount households and firms are willing to spend at each level of income
• AE= C+I+G+(x-m)

Question 2

determinants of consumption

Answer 2

• level of disposable income
• expectations of consumption
• cost of credit
• personal wealth
• government policies

Question 3

define private investment

Answer 3

expenditure on producer or capital goods that are used to produce the final goods and services in the future

Question 4

determinants of private investment

Answer 4

• risk, investment rises/falls according to percieved risk of failure
• nominal rates, real rates of interest
• current price of borrowed money,
• takes into rate of inflation into account,
• takes into account of inflation and are more important determinants of investment than nominal rates
• business expenditure
• what businesses think of current economic activity
• impacts profitability
• profitability
• firms retain money for expansion,
• government policies
• influence investments both directly and indirectly

Question 5

government expenditure

Answer 5

• stable from year to year
• shaped by non economical factors such as social and political influences
• basic government programs such as health have ongoing funding needs
• cant be changed much
• cyclical fluctuations can cause gov. to make discretionary changes in taxation and expenditure

Question 6

net exports

Answer 6

• exports minus imports
• quite volatile components of aggregate expenditure, esp. in australia as australia relies on trade and depends on overseas activity
• global econ. Activity is high, demand is high therefore high prices paid
• australia has very high marginal propensity rate

Question 7

circular flow of income model

Answer 7

• theoretical way for economists to describe certain features of economic activity and the linkages between the main sectors
• five sectors

Question 8

leakages

Answer 8

• defined as withdrawal from flow
• when households and firms save part of their income, it constitutes as a leakage
• leakages can take the form of savings, tax and income
• ## leakages reduce the flow of income

Question 9

S+T+M > I+G+X

Answer 9

• leakages greater than injections
• savings decrease
• less taxes paid
• spend less on imports
• leakages of savings will fall until they equal injections.
• lower level of equilibrium income will be established, economy contracts

Question 10

injections

Answer 10

• defined as introduction of income into the flow
• households and firms borrow the savings
• constitute injections
• increase flow of income
• can take form of investment, gov spendjng and exports

Question 11

S+T+M<I+G+X

Answer 11

• injections greater than investments
• income, output, expenditure and employment will rise
• causes an expansion in economic activity
• income rises, savings and taxation jncrease.
• spending on imports will increase
• savings, tax and imports will rise to equal the rest.
• higher level of equil.