Theme 2:2.2-AD Flashcards

1
Q

what are are the components of AD?

A

C+I+G+(X-M)

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2
Q

define AD.

A

the total amount of spending on goods and services produced in an economy during a period of time

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3
Q

what was the breakdown on real GDP(2013)?

A

consumption-65%
Gov expenditure-22.5%
investment-15%

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4
Q

what is consumption dependent on?

A

-disposable income
-interest rates
-consumer confidence

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5
Q

what is investment dependent on?

A

-profits
-interest rates
-confidence

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6
Q

what is Gov expenditure dependent on?

A

-tax revenue
-budget position
-debt burden

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7
Q

what are imports and exports dependent on?

A

-exchange rates
-global demand
-relative inflation rate

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8
Q

what causes a contraction and expansion of AD?

A

rise in price and fall in price

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9
Q

what does and outward shift of AD represent?

A

a rise in national output at all price levels

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10
Q

what is the average propensity to consume?

A

proportion of income households devote to consumption

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11
Q

what is the marginal propensity to consume?

A

proportion of additional income devoted to consumption

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12
Q

what is marginal propensity to save?

A

proportion of increase in disposable income that households would devote to saving

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13
Q

formula for average propensity to consume.

A

c/y consumption/disposable income

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14
Q

formula for marginal propensity to consume.

A

C new-C old/Y new-Y old
change in consumption/change in disposable income

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15
Q

difference between wealth and income?

A

wealth-value of assets e.g. stocks
income-the flow of money e.g. salary

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16
Q

why is the AD curve downward sloping?

A

Because a rise in price causes a fall in Real GDP.

17
Q
A
18
Q
A