2C

Question 1

What is aggregate demand

Answer 1

The total spending on all goods and services in an economy at different price levels

Question 2

Why is AD curve sloping downwards

Answer 2

Wealth effect- As prices fall people feel wealthier and wish to buy more goods and services.
The interest rate effect- At lower prices interest rates tend to be lower allowing people to borrow cheaper and therefore make bigger purchases.

Question 3

What is consumption

Answer 3

Household spending on goods and services. Largest component of AD. Main influence is disposable income-more income, more spending.

Question 4

MPC

Answer 4

Marginal propensity to consume

Question 5

What is MPC

Answer 5

The proportion of any increase in income that is spent on consumption.

Question 6

What is the effect on MPC when income levels are high

Answer 6

MPC can fall to 60-70%

Question 7

What is the effect on MPC when income levels are low

Answer 7

MPC usually 100% When a rise in income occurs

Question 8

Import spending (negative)

Answer 8

Goods and services bought from abroad, represents an outflow of funds from UK, reduces AD.

Affected by
-exchange rates
-Inflation

Question 9

What is investment

Answer 9

Is spending on machinery, equipment, buildings and infrastructure.

Question 10

What affects investment

Answer 10

Interest rates + availability of finance
Business confidence
Actual and expected demand
expected profits and business taxes.

Question 11

What does gov spending effect

Answer 11

Défense
Health
social wealth fare
Education
Law order

Question 12

Export earnings (positive)

Answer 12

-Good and services sold abroad
-Represents an inflow of funds into the UK
-Increases AD
-Affected by- exchange rates, inflation.

Question 13

Saving+ on C

Answer 13

C-

Question 14

Interest rates+ on C

Answer 14

Saving+, Borrowing-

Therefore C-

Question 15

IR+ on Investment

Answer 15

I-

Question 16

Exchange rates on exports

Answer 16

Stronger, net exports (X-M) -
Weaker, net exports +

Question 17

Inflation between countries on exports

Answer 17

I+ more imports
I- more exports

Question 18

What AS

Answer 18

The total amount of goods and services produced within an economy at a given price level

Question 19

SRAS

Answer 19

Assumes factors of production are fixed

Question 20

LRAS

Answer 20

All factors of production are variable.

Question 21

SRAS shifters

Answer 21

-Change in labour costs- e.g minimum wage.
-Change in production costs
-Corporation tax
-Price if imports
-Exchange rates- Making imports of productions costs more expensive.

Question 22

Exchange rates appreciation

Answer 22

S-Stronger
P-Pound
I-Imports
C-Cheap
E-Exports
D-Dearer
AD-

Question 23

Deprecation exchange rate

Answer 23

W-Weak
P-Pound
I-Imports
D-Dearer
E-Exports
C-Cheaper

Question 24

LRAS monetarist belief

Answer 24

Monetarists believe in the LR that the economy will operate at full capacity. E.g. labour being fully utilised, No U

Question 25

LRAS Keynesian belief

Answer 25

Believe that in LR the economy will settle at a level when there is still U due to a lack of AD.

Question 26

LRAS Keynesian belief

Answer 26

Believe that in LR the economy will settle at a level when there is still U due to a lack of AD.

Question 27

LRAS shifters

Answer 27

Quantity of labour-migration
Quality of labour-Education
Technology/ Rand D

Question 28

X and Y axis

Answer 28

GPL and RGDP