Topic 2 Flashcards
If £5 is circulated around the economy 4 times, what is the value of the economy?
£20
Is national - income,output and expenditure equal.
Yes
Which two ‘parties’ are the reason for the circular flow of income?
House holds and firms
Is the value of the economy always 100%?
No
Why isnt the value of the economy not always 100%
Withdrawals and injections
What are some examples of withdrawals (3)
Tax
Imports
Savings
Give 3 examples of injections?
Gov Expenditure
Exports
Investment
What is the equation for AD?
C + I + G+(X-M)
What are the factors affecting consumption?(6)
Real Disposeable Income Interest Rates Tax rates Wealth Consumer Confidence Credit availability
Give an example of tax on consumers
Income
What is meant by interest rates ?
The cost of borrowing and the reward on saving
What comes under wealth? (4)
Property
Bonds
Shares
Savings
What is investment?
Money spent by firms
What is investment done on (5)
Equipment Machinery Buildings Infrastructure Capital Goods
Why do firms invest
To be efficient, causing more output, lowering costs
What influences investment?(6)
Rate of technical progress Interest rates Business Expectation Tax Reate of change in income Cost of labour
What kind of tax is issued on firms
VAT
Coorpiration
Does investmeant help control inflation?
Yes
Why does investment help control inflation
As it allows firms to be more efficient, allowing them to have a lower cost of production, meaning they can charge lower prices.
What do goverments spend money on(3)
Infrastructure
Day to day services
Pensions, etc
What is gov spending influenced by? (3)
Amount coming in (income tax)
Size of the budget deficit
Amount of debt
How can exports increase (3)
The UK being more competitive
Higher level of growth in trading economies
Lower value of currency
How can imports decrease ? (3)
UK being more competitive
Lower value of currency
Inflation in other countries
What does savings affect
Investment and consumption
What influences savings (6)
Interest rates Credit availability Price expectation Unemployment Consumer confidence Tax on savings
What is AS?
The total value of supply in an economy
What is SRAS?
The supply available for current times, and the near future.
what affects sras
teh costs of production in teh economy
What affects SRAS (6)
Wages Interest Rates Prices of imported materials Labpour productivity Energy prices Technical progress
What is LRAS? (2)
teh level of output teh economy will producein the logn run using all factors of production at sustainable levels
in the short run what are wages
fixed
in the long run what are resource prices
variable
What types of graph are there for LRAS ?
Classical and Keynesian
What are the factors that affect LRAS? (5)
Available land and raw materials Quantity and quality of labour and capital Tech improvements Level of entrepreneurship Labour supply Mobility of labour Capital stock Business efficiency Innovation and invention
What is an economic shock?
Something unexpected that hits the economy, affecting supply or demand or both
What is the multiplier effect
Where the increase in an economy’s value is greater than the inital injection.
How do you calculate the multiplier effect?
1/(savings + tax + imports )
What is the accelerator affect?
Where demand rises, causing a firm to work close to full capcity (or at it), causing them to invest to increase capacity.
What is the negative accelerator effect?
Where demand is falling , causing a firms net investment to decrease
What is the Marginal propensity to consume?
A measure of the proportion of extra income spent.
What affects Marginal prosperity to consume ? (4)
Temporary or Permanent disposable income
Income
Interest rates
Consumer confidence
What are the 3 factors that limit marginal prosperity to consume
Savings
Tax
How do you calculate Marginal propensity to save
Change in savings/Change in income
summary of what causes shifts in lras
qualit and quantitiy of factors of production
proepr def of what sras shows
hwo much an economy can produce at a given price level using teh available factors and some resources fixed
what si constant for sras
leves of productivity
costs of rpoduction
technology advancements
another def of lras
hwo much an eco can produce using all factors at their optimum sustainabe capcity
all factors are vairable and full employment, and the amoutn outputted doesnt depend on price leevl
another def of sras
the total amoutn fo goods and services supplied at given pracie levels
