2.2,2.3 Aggregate demand and supply Flashcards
(24 cards)
The formula for aggregate demand:
AD=C+I+G+ (X-M)
How does disposable income influence consumer spending?
Where there is lots of disposable income people have more spending power so they will spend more money.
How will the rate of savings influence consumer spending?
Consumers will substitute savings for spendings which will increase consumer spendings.
How will consumer confidence influence consumer spending?
When they are more confident, they tend to be spending more money.
How will wealth influence consumer spending?
With wealth comes disposable income which means there will be more confidence in spending money and therefore there will be more consumer spending.
What’s the difference between Gross investments and net investments?
Gross investments=Net Investments-Depreciation
How does the rate of economic growth influence investments?
As economic growth increases so does investments because people will have a better thought that in the future demand for goods will increase.
How does business confidence influence investments?
Because businesses are more confident, they will have future confidence which would lead to more confidence in the future for investments.
How does animal spirits influence investments?
As people are in a state of fear, investments decrease. As state of confidence increases investments also increase.
How does demand for exports influence investments?
As there is higher demand there is more confidence and therefore there is an increase in investments.
How does government regulations influence investments?
An increase in tax would lead to a decrease in investments because there is less disposable income.
How does government expenditure change at different stages in the trade cycle?
As there is a decrease in economic growth there is an increase in the government expenditure.
How does fiscal policy influence government expenditure?
It will increase as they are still spending more than they are receiving in tax.
How does real income influence trade balance?
As real income increases there is a deficit in the trade balance as there are more imports.
How does exchange rates influence trade balance?
If the GBP increases, then there will be a fall in exports and therefore a deficit.
How does the state of the economic growth influence trade balance?
If there is an increase in the ESOTW then there would be a higher demand for exports and therefore a surplus.
How do non price factors influence trade balance?
Non price factors can lead to a decrease in demand and if so then there are less exports and therefore a deficit.
How does a rise in wages affect SRAS?
As wages rise the SRAS will decrease because the cost of production increases.
How will a fall in the cost of raw materials influence SRAS?
As raw materials rise in price SRAS will decrease as there is a higher cost of production.
How will a fall in business taxes affect SRAS?
SRAS will increase because there is a lower cost of production.
How will a rise in the pound affect SRAS?
SRAS will increase as raw materials become cheaper.
How will a fall in productivity affect SRAS?
SRAS will decrease as the more time it takes wages will increase.
How will technological advancement influence LRAS?
There is an improvement in CELL which affects LRAS.
How does an increase in productivity influence LRAS?
Shift outwards due to lower cost per unit.
