2.2,2.3 Aggregate demand and supply

Question 1

The formula for aggregate demand:

Answer 1

AD=C+I+G+ (X-M)

Question 2

How does disposable income influence consumer spending?

Answer 2

Where there is lots of disposable income people have more spending power so they will spend more money.

Question 3

How will the rate of savings influence consumer spending?

Answer 3

Consumers will substitute savings for spendings which will increase consumer spendings.

Question 4

How will consumer confidence influence consumer spending?

Answer 4

When they are more confident, they tend to be spending more money.

Question 5

How will wealth influence consumer spending?

Answer 5

With wealth comes disposable income which means there will be more confidence in spending money and therefore there will be more consumer spending.

Question 6

What’s the difference between Gross investments and net investments?

Answer 6

Gross investments=Net Investments-Depreciation

Question 7

How does the rate of economic growth influence investments?

Answer 7

As economic growth increases so does investments because people will have a better thought that in the future demand for goods will increase.

Question 8

How does business confidence influence investments?

Answer 8

Because businesses are more confident, they will have future confidence which would lead to more confidence in the future for investments.

Question 9

How does animal spirits influence investments?

Answer 9

As people are in a state of fear, investments decrease. As state of confidence increases investments also increase.

Question 10

How does demand for exports influence investments?

Answer 10

As there is higher demand there is more confidence and therefore there is an increase in investments.

Question 11

How does government regulations influence investments?

Answer 11

An increase in tax would lead to a decrease in investments because there is less disposable income.

Question 12

How does government expenditure change at different stages in the trade cycle?

Answer 12

As there is a decrease in economic growth there is an increase in the government expenditure.

Question 13

How does fiscal policy influence government expenditure?

Answer 13

It will increase as they are still spending more than they are receiving in tax.

Question 14

How does real income influence trade balance?

Answer 14

As real income increases there is a deficit in the trade balance as there are more imports.

Question 15

How does exchange rates influence trade balance?

Answer 15

If the GBP increases, then there will be a fall in exports and therefore a deficit.

Question 16

How does the state of the economic growth influence trade balance?

Answer 16

If there is an increase in the ESOTW then there would be a higher demand for exports and therefore a surplus.

Question 17

How do non price factors influence trade balance?

Answer 17

Non price factors can lead to a decrease in demand and if so then there are less exports and therefore a deficit.

Question 18

How does a rise in wages affect SRAS?

Answer 18

As wages rise the SRAS will decrease because the cost of production increases.

Question 19

How will a fall in the cost of raw materials influence SRAS?

Answer 19

As raw materials rise in price SRAS will decrease as there is a higher cost of production.

Question 20

How will a fall in business taxes affect SRAS?

Answer 20

SRAS will increase because there is a lower cost of production.

Question 21

How will a rise in the pound affect SRAS?

Answer 21

SRAS will increase as raw materials become cheaper.

Question 22

How will a fall in productivity affect SRAS?

Answer 22

SRAS will decrease as the more time it takes wages will increase.

Question 23

How will technological advancement influence LRAS?

Answer 23

There is an improvement in CELL which affects LRAS.

Question 24

How does an increase in productivity influence LRAS?

Answer 24

Shift outwards due to lower cost per unit.