T2.2 AD (c+i+g+(x-m))

Question 1

What is aggregate demand?

Answer 1

Total amount of goods and services demanded in the economy at a given time and price level. It is the sum of consumption expenditure, investment expenditure, government expenditure and net exports.

Question 2

What are animal spirits?

Answer 2

The state of confidence or pessimism held by consumers and businesses.

Question 3

What is consumer confidence?

Answer 3

Expectations about the future including interest rates, incomes and jobs.

Question 4

What are consumer durables?

Answer 4

Products such as washing machines or computer screens that are not used up immediately when consumed and which provide a flow of services over time.

Question 5

What is consumer spending?

Answer 5

Household spending on G&S. In the UK, household consumption is the largest element of AD: 67% in 2019.

Question 6

What is disposable income?

Answer 6

Gross income less income tax and national insurance contributions plus welfare benefits.

Question 7

What is household income?

Answer 7

The financial resources available to households to spend or save.

Question 8

What is the formula for gross income?

Answer 8

Gross income = original income + cash benefits.

Question 9

What is the formula for disposable income?

Answer 9

Disposable income = gross income minus direct taxes.

Question 10

What is post-tax income?

Answer 10

Post-tax income = disposable income minus indirect taxes.

Question 11

What is wealth?

Answer 11

The monetary value of assets - including property, shares, savings, pension fund assets.

Question 12

What is income?

Answer 12

Income is a flow of money to factors of production such as wages and salaries paid to people in work, interest from savings and rental income from owning land/assets.

Question 13

What is an interest rate?

Answer 13

An interest rate is the cost or price of borrowing, or the gain from lending, normally expressed as an annual percentage amount.

Question 14

What is negative equity?

Answer 14

When the value of an asset falls below the debt left to pay on that asset.

Question 15

What is a pension fund?

Answer 15

Fund that pools employees’ pension benefits and holds them so that they can be paid at retirement. The money is invested in stocks, bonds and other assets to boost returns and ensure that there are sufficient funds to be paid out.

Question 16

What is the personal allowance?

Answer 16

The amount of income you can earn before you start paying income tax. It is £12,500 in 2019.

Question 17

What is precautionary saving?

Answer 17

Saving because of fears of a loss of real income or rising unemployment.

Question 18

What is the savings ratio?

Answer 18

The percentage of household disposable income that is saved rather than spent.

Question 19

What is unsecured credit?

Answer 19

Credit not secured by another asset - i.e. money borrowed on credit cards.

Question 20

What is the wealth effect?

Answer 20

The supposed link between changes in wealth and household spending.

Question 21

What is access to credit?

Answer 21

The willingness and ability of financial institutions to lend funds to producers and consumers.

Question 22

What is business confidence?

Answer 22

Expectations about the future of the economy - vital in influencing business decisions about how much to spend on new capital goods and employment intentions.

Question 23

What is gross investment?

Answer 23

Total investment calculated by adding new investment to replacement investment.

Question 24

What is net investment?

Answer 24

Total investment minus replacement investment.

Question 25

What is replacement investment?

Answer 25

The purchase of capital goods by firms to replace existing, worn out capital. It does not add to the total capital stock of an economy.

Question 26

What is fiscal policy?

Answer 26

A government’s policy regarding taxation and public spending. It can be loose or tight.

Question 27

What is government borrowing?

Answer 27

The amount the government must borrow each year to finance their spending.

Question 28

What is government debt?

Answer 28

The total stock of unpaid debt issued by a government.

Question 29

What is government spending?

Answer 29

Spending by government on education, health care and defence & other public services.

Question 30

What is the trade cycle?

Answer 30

A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc.

Question 31

What is the exchange rate?

Answer 31

Exchange rates are the price of one country’s currency in relation to another.

Question 32

What is net primary income?

Answer 32

Interest, profits and dividends from assets owned and located overseas.

Question 33

What is net secondary income?

Answer 33

Part of the current account of the balance of payments, it includes overseas aid / debt relief, military grants and (for the UK) net payments to the European Union.

Question 34

What is net trade?

Answer 34

The balance between the monetary value of exports and imports.

Question 35

What is protectionism?

Answer 35

Restricting trade through tariffs and other forms of import controls such as quotas.