macro year 1

Question 1

triggers for rise in consumption

Answer 1

1. increase in disposable income
2. fall in taxation/ increase in PA
3. positive wealth effect
4. consumer confidence
5. reduction in interest rates
6. increase in availability of credit
7. inflation expectations
8. fall in the savings ratio

Question 2

how increase in consumption leads to SR economic growth

Answer 2

1. [insert trigger for rise in consumption] e.g. increase in PA
2. increase in disposable income
3. according to keynesian consumption function, increase consumer spending
4. increase in demand for goods and services throughout the economy
5. increase in AD (AD-AD1)
6. increase in national income (real GDP)
7. short-run economic growth

Question 3

government spending to correct budget deficit

Answer 3

1. government issues girls in primary capital markets
2. raise finance to fund budget deficit
3. increase in demand for goods and services throughout the economy
4. injection into the circular flow of income
5. increase in aggregate demand (AD-AD1)
6. derived-demand for labour
7. fall in unemployment

Question 4

triggers for rise in investment

Answer 4

1. fall in interest rates
2. fall in cost of capital
3. increase in technological progress
4. increase in business expectations
5. fall in interest rates
6. lowers borrowing for firms
7. increases MEC
8. increase in investment
9. increase in demand for capital goods
10. increase in productive capacity of economy (LRAS-LRAS1)
11. long-run economic growth

Question 5

rise in export revenue improve BoP

Answer 5

1. Fall in Exchange rates
2. improved economic performance of trading partners
3. relatively low inflation
4. a reduction in the base rate of interest
5. reduction in the reward for international saving
6. outflow of hot money
7. increase in supply of sterling (S-S1)
8. fall in sterling exchange rate
9. low external price of UK X and increase demand
10. improve BoP on CA

Question 6

fall in export revenue

Answer 6

1. rise in exchange rates
2. worsening economic performance of trading partners
3. relatively higher inflation rate
4. high inflation rate increases price of UK exports
5. reduces international price competitiveness
6. fall in demand for UK exports and export revenue
7. smaller injection than planned into circular flow of income
8. fall in AD (AD-AD1)
9. fall in demand pull inflationary pressure

Question 7

rise in import expenditure

Answer 7

1. fall in interest rates
2. rise in national income
3. relatively higher inflation rate
4. as the Bank rate falls, lower cost of borrowing for commercial banks
5. increases spread
6. reduction in interest rates for borrowers whilst maintaining original spread
7. lower cost of borrowing for consumers
8. increased spending on goods and services
9. uk has high MPM (35%)
10. increase demand for imports, increase in import expenditure, worsening of trade balance