1aggregate demand (AD)
the total amount of planned expenditure on goods and services at. agiven price level in an economy in a year
3consumption makes up …% of AD in the UK
60
4government expenditure makes up …% of AD in the UK
25
5investment makes up …% of AD in the UK
15
63 reasons that the AD curve is downard sloping
real balance effect (fall in PPP), international trade effect (decrease in the international competitiveness of UK goods and services), interest rate effect (less consumption and investment)
7AD shifts when
any component of AD changes
8the size of the shift in AD depens on the
multiplier effect
9consumptions (C)
spending by households on goods and services
10most important factor influencing consumer spending
disposable income
11disposable income
the income available to spend after the deduction of taxes
12marginal propensity to consume (MPC)
consumption / disposable income
13marginal propensity to save (MPS)
savings / disposable income
143 influences of consumption
interest rates, consumer confidence, wealth effect
15interest rates
the cost of borrowing or the reward for saving
16investment (I)
the increase in capital stock
17gross investment
the total expenditure on new capital goods
18gross investment =
net investment + depreciation
19depreciation
the fall in value of a capital asset due wear and tear and obsolescence
20net investment
the new additions to capital stock after taking into account the fall in value of capital assets
21net investment =
gross investment - depreciation
227 influences on investment
rate of economic growth, business expectations and confidence, Keynes and ‘animal spirits’, demand for exports, interest rates, access to credit, influence of government and regulation
23corporate tax
a tax on a firms’ profits
242 influences on governemnt expenditure
trade cycle, fiscal policy
25fiscal policy
the use of government expenditure and taxation to influence the level of economic activity
265 factors influencing the net trade balance
real income, exchange rates, state of the world economy, degree of portectionism, non-price factors
274 examples of non-price factors
quality and design, reliability, after-sales service, transport costs