Unit 2 - The National and International Economy Flashcards
AD =
C + I + G + (X-M)
Economic growth
In the short run, an increase in real GDP, and in the long run, an increase in productive capacity, that is, in the maximum output that the economy can produce.
Unemployment
A situation where people are out of work but are willing and able to work.
Inflation
A sustained rise in the price level; the percentage increase in the price level over a period of time.
Gross Domestic Product (GDP)
The total output of goods and services produced in a country
Aggregate Demand
The total demand for a country’s goods and services at a given price level and in a given time period.
Aggregate Supply
The total amount that producers in an economy are willing and able to supply at a given price level in a given time period.
Multiplier effect
The process by which any change in a component of aggregate demand results in a greater final change in real GDP.
Supply-side policies
Policies designed to increase aggregate supply by improving the efficiency of labour and product markets.
Monetary policy
Central bank and/or government decisions on the rate of interest, the money supply and the exchange rate.
Fiscal policy
The taxation and spending decisions of a government.
Determinants of consumer expenditure
- Real disposable income
- Wealth
- Consumer confidence
- Interest rates
- Inflation
- Demographics
- Channels to saving
- Credit availability
Determinants of investment expenditure
- Changes in real disposable income
- Capacity utilisation (firms are more likely to invest if they are operating close to full capacity)
- Corporation tax
- Interest rate
- Technological advances
Determinants of government expenditure
- The governments view on the extent of market failure and its ability to correct it.
- The level of economic activity in the economy can influence government spending
Determinants of net exports
- Real disposable income abroad
- Real disposable income at home
- Exchange rate
What would cause a shift to the right in the AD curve? (4)
- A fall in the interest rate
- Fall in the exchange rate
- Rise in the population
- Cuts in income tax
What would cause a shift to the left in the AD curve? (4)
- A rise in the interest rate
- A rise in the exchange rate
- Fall in share prices on global markets
- A rise in income tax
What would cause a shift in the SRAS curve? (4)
- Changes in the costs of production
- Changes in the costs of raw materials
- Changes in wages
- Changes to producer taxes
What would cause a shifts in the LRAS curve? (3)
- Changes in the quantity and quality of resources
- Improvements in education and training
- Advancements in technology
Circular flow of income - producers and consumers
Household expenditure (consumption) flows to firms to pay for goods and services