Theme 2:2.2-AD Flashcards
what are are the components of AD?
C+I+G+(X-M)
define AD.
the total amount of spending on goods and services produced in an economy during a period of time
what was the breakdown on real GDP(2013)?
consumption-65%
Gov expenditure-22.5%
investment-15%
what is consumption dependent on?
-disposable income
-interest rates
-consumer confidence
what is investment dependent on?
-profits
-interest rates
-confidence
what is Gov expenditure dependent on?
-tax revenue
-budget position
-debt burden
what are imports and exports dependent on?
-exchange rates
-global demand
-relative inflation rate
what causes a contraction and expansion of AD?
rise in price and fall in price
what does and outward shift of AD represent?
a rise in national output at all price levels
what is the average propensity to consume?
proportion of income households devote to consumption
what is the marginal propensity to consume?
proportion of additional income devoted to consumption
what is marginal propensity to save?
proportion of increase in disposable income that households would devote to saving
formula for average propensity to consume.
c/y consumption/disposable income
formula for marginal propensity to consume.
C new-C old/Y new-Y old
change in consumption/change in disposable income
difference between wealth and income?
wealth-value of assets e.g. stocks
income-the flow of money e.g. salary
