Macro Aggregate demand and supply

Question 1

what are the 3 injections into the economy

Answer 1

investments
government spending
exports

Question 2

what are the 3 leakages out the economy

Answer 2

savings
taxes
imports

Question 3

what is national income?

Answer 3

the total value of the output, expenditure or input of an economy

Question 4

what is national expenditure

Answer 4

value of spending by households on goods and services

Question 5

what is national output

Answer 5

value of the flow of goods and services from firms to housholds

Question 6

what is aggregate demand

Answer 6

total demand for a country’s goods and services at a given price level and given time period

Question 7

aggregate demand equation?

Answer 7

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

Question 8

define consumption

Answer 8

use of goods and services to satisfy wants

Question 9

define disposable income

Answer 9

income that households have to devote to consumption and saving

Question 10

3 examples of influcences of consumption

Answer 10

disposable income

wealth (stoke accumulated from past savings)

rate of interest

Question 11

what is GDP

Answer 11

value of all final goods and services produced within a country’s borders during a specific period, typically a year

Question 12

what does national expenditure show?

Answer 12

how resources are being used
(what proportion to consumption and what to investment)

Question 13

what is interest

Answer 13

the cost of borrowing/reward for lending

Question 14

what is investment?

Answer 14

expenditure by firms on capital stock

Question 15

4 different types of government spending

Answer 15

-capital spending
-welfare spending
-debt interest payments
-current spending

Question 16

example of current government spending

Answer 16

on maintenance of key public services and public sector wages

Question 17

examples of capital government spending

Answer 17

infrastructure projects (airports, bridges, roads)

Question 18

examples of welfare government spending

Answer 18

benefits and pensions

Question 19

examples of government debt interest payments

Answer 19

anytime governments take on more debt there is interest paid to other countries

Question 20

budget surplus?

Answer 20

tax revenue > government spending

Question 21

budget deficit?

Answer 21

tax revenue < government spending

Question 22

what are net exports?

Answer 22

exports - imports

Question 23

what are the 5 important determinants of net exports?

Answer 23

• real disposable income
  -real disposable income
  -exchange rates
  -protectionism
  -inflation levels at home

Question 24

what happens when exchange is rates are weak

Answer 24

WIDEC

Weak : Imports Dear Exports Cheap

Question 25

what happens when exchange rates are strong to

Answer 25

SPICED Strong Pound: Imports Cheap Exports Dear

Question 26

6 determinates of investment

Answer 26

Intrest rates Business confidence Corporation tax Spare capacity Level of competition Price of capital

Question 27

What is the relationship between price level and RGDP

Answer 27

Inverse

Question 28

What is the wealth effect and which axis and AS AD diagram does it effect

Answer 28

As price level decreases the purchasing power of income increase people are richer making them more likely to increase consumption It effects the price level

Question 30

What is the trade effect

Answer 30

As the price level decreases exports become less competitive as domestic become more competitive. X will increase exports will increase

Question 31

What is the intrest effect

Answer 31

As price level decrease intrest rates will be kept lower with will stimulate more consumption and investment and reduce the value of the pound so exports will increase

Question 32

When much investment increase 3

Answer 32

-reduction in interest rates -Increase in business confidence - high spare capacity level

Question 33

The impact of oil prices on SRAS

Answer 33

When oil prices increase COP for ALL firms will increase shifting SRAS to the left

Question 34

Effect of import prices increasing on the SRAS and economy

Answer 34

If there is a weak exchange rate and import prices increases there will be higher COP SRAS shifts left

Question 35

What is YFE om LRAS

Answer 35

full employment of factors of production Maximum level of output an economy can produce at

Question 36

Which model has both short and long run

Answer 36

Classical

Question 37

What is SRAS determined by

Answer 37

Cost of production

Question 38

4 most important factors that will shift SRAS

Answer 38

Wages Oil prices Import prices business taxes Raw materials

Question 40

What is classical LRAS position determined by simply

Answer 40

The quality and quantity of factors of production

Question 41

Q2 CELL

Answer 41

Quality Quantity Capital Enterprise Land Labour

Question 42

4 things that would cause LRAS to shift right

Answer 42

Increase labour productivity and quantity Increased investment Increased infrastructure Increased competition

Question 44

Potential things that would shift LRAS left

Answer 44

Low productivity Mass capital depreciation War/conflict/natural disaster Death/immigration aboard Less/little technological advancement

Question 45

Which model believes in government intervention and why and what suggestion to fix

Answer 45

Keynesian Periods of recession could not resolve on its own and required fiscal policy, increased government spending and reduction in tax even borrowing

Question 47

a