Definitions / Examples

Question 1

What are leakages /withdrawals from circular flow of income

Answer 1

Savings taxes and imports - when incomes are not spent within the economy

Question 2

What are injections into circular flow of incomes

Answer 2

Investments, gov spending, exports - money added into economy not from consumers (households) within an economy

Question 3

When does ad contract or expand

Answer 3

Factories influenced by price level
Wealth effect (c)
Trade effect (x-m)
Interest effects - c,I, (x-m)

Ensure of spending not quantity

Question 4

What 5 factors affect determinants of consumption

Answer 4

Level of real disposable income
Interest rates
Consumer confidence
Asset prices
Household debt

Question 6

What are determinants of savings

Answer 6

Tax incentive -is a
Trustworthiness of financial institutions x developing countries
Incomes
Age - middle aged save more
Confidence in economy
Interest rates

Question 8

What are the determinants of investment

Answer 8

Interest rates
Business confidence
Corporate tax
Spare capacity
Level of competition
Price of capital

Evaluation - use accelerator effect

Question 9

Definition of investment

Answer 9

Firm’s spending money on capital goods to increase production

Question 10

Accelerator effect

Answer 10

Increase in rate of real gdp which encourages more investment as so does ad

Question 11

What is governed spending

Answer 11

Current spending - maintaining publi services and payment of wages
Capital spending - infastructure projects
Welfare spending - benefits and pension
Debts interest payments

1st 3 injectios

Question 12

What is gov spending

Answer 12

Current spending - maintaining publi services and payment of wages
Capital spending - infastructure projects
Welfare spending - benefits and pensions
Interest on national debt

Question 13

Determinants of net exports

Answer 13

Real disposable income earned abroad
Real disposable income earned at home
Strong or weak eagle rates
Protectionism at home/abroad
Relative inflation levels at home

Question 15

Def of inflation

Answer 15

Persistent increase of prices in an economy in a year

Question 16

Factors for demand pull inflation

Answer 16

More pressure and scarcity on FOP

Interest rates
Businesses /consumer confidence
Income/corp tax
Gov spending
Weaker exchange rates - more exports

Question 17

Factors for cost push inflation

Answer 17

Increase to Cop which will be passed on to consumers
Raw material prices up
Wages up
Besuiness tax up
Price of imported raw materials up

Question 20

What is wrong with deflation

Answer 20

If demand side
Long term and anticipated very bad
Higher unemployment
Delayed spending (spiral)

Question 22

What’s good with deflation

Answer 22

Supply side
Cheaper prices for consumers
Input prices for firms