Theme 2: Aggregate Demand

Question 1

Components of aggregate demand

Answer 1

-consumers spending
-investment
-government spending
-exports minus imports

Question 2

Disposable income influence on spending

Answer 2

The income left after taxes and social security charges
Marginal propensity to consume is how much a consumer changes spending following change in income

Question 3

Relationship between savings and consumption

Answer 3

Consumers marginal propensity to consume added to marginal propensity to save is equal to 1

Question 4

Influences on consumer spending

Answer 4

-interest rates
-consumers confidence
-wealth effects

Question 5

Influences on investment

Answer 5

-rate of economic growth
-businesses expectations and confidence
-demand for exports
-interest rates
-access to credit
-the influence of government and regulation

Question 6

Influences on goverment expenditure

Answer 6

-trade cycle
-fiscal policy
-net trade

Question 7

Influences on the trade balance

Answer 7

-real income
-exchange rates
-state of the world economy
-degree of protectionism
-non price factors

Question 8

Current account

Answer 8

-Trade in goods
-Trade in services
-income
-transfers

Question 9

Current account deficit

Answer 9

Demand side
-strong domestic growth
-recession overseas
-strong exchange rate
-SPICED

Supply side
-low investment
-low productivity
-high relative inflation
-poor quality