theme 2: AD

Question 1

Aggregate demand meaning

Answer 1

total level of expenditure on all domestic goods and services

Question 2

what makes up AD

Answer 2

AD=C+I+G(X-M)
consumption 60%
investment 15%-20%
government spending 18-20%
exports - imports 5%

Question 3

consumption meaning

Answer 3

spending on consumer goods/ services over a period of time at a price point

Question 4

factors increasing C

Answer 4

increase:
consumer confidence
real incomes
wealth
Access to credit

falling:
unemployment
interest rates
income taxes

Question 5

disposable income meaning

Answer 5

household income over a period of time including benefits after taxes are taken away

Question 6

savings meaning

Answer 6

proportion of a households disposable income that isn’t spent over a period of time

Question 7

marginal propensity to consume meaning + formula

Answer 7

proportion of income which is spent

change in consumption / change in Y

Question 8

marginal propensity to save meaning + formula

Answer 8

proportion of a change in income which is saved

change in saving / change in Y

Question 9

Interest rates meaning

Answer 9

reward for saving and cost of borrowing

Question 10

wealth effect meaning

Answer 10

increase in the value of an asset increases confidence of the asset holder causing more consumption

Question 11

investment meaning

Answer 11

addition of capital stock to the economy

Question 12

Capital depreciation meaning

Answer 12

when capital overtime loses value due to wear and tear

Question 13

investment in human capital meaning

Answer 13

investment into education or training to increase skills of workers

Question 14

influence of investment

Answer 14

interest rates
economic growth
animal spirit
demand for exports
access to credit
regulation
retained profits
cost
tech improvements

Question 15

budget :
defecate
surplus
meaning

Answer 15

gov spending > gov rev
gov rev> gov spending

Question 16

influences on government expenditure

Answer 16

trade cycle
fiscal policy
demography

Question 17

trade cycle in influencing government expenditure

Answer 17

decisions to manage AD
recession- increase spending to decrease unemployment
boom- decrease spending to decrease demand and reduce inflation

Question 18

fiscal policy in influencing government expenditure

Answer 18

expansionary - decrease taxes increase spending
contractionary- increase taxes increase spendingq

Question 19

demography in influencing government expenditure

Answer 19

ageing population- more money spent on pensions
young population- more money spent on education

Question 20

net export
net trade balance

Answer 20

exports - imports

Question 21

influences of x - m

Answer 21

real income
exchange rates
state of the world economy
protectionism
non-price factors
prices

Question 22

real income influencing x - m

Answer 22

high income
increase imports
higher demand
UK unable to meet demand
imports closes excess demand

export led growth increases net trade

Question 23

exchange rates influencing x - m

Answer 23

strong £ makes imports cheaper and exports more expensive
costs more for foreigners to buy £ with local currency
less price competitive exports

Question 24

state of the world economy influencing x - m

Answer 24

if UK’s main export buyer is doing well exports are likely to rise

Question 25

protectionism

Answer 25

harder/ more expensive to buy imports

Question 26

non price factors influencing x - m

Answer 26

better quality exports increase demand for export likely to make the good inelastic

Question 27

prices influencing x - m

Answer 27

high prices cause less international competitiveness of export

Question 28

ev for influencing x - m

Answer 28

dependent on the PED depreciation- j curve (CA worserns in SR, becomes better in the long run PED>1) competitive advantage/ absolute advantage TOT