MACROECONOMICS
- Created by: samsam001
- Created on: 22-03-14 14:44
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- MACROECONOMICS
- objectives
- low and stable inflation
- low unemployment
- balance of payments
- strong and sustainable economic growth
- AD
- AD is the total spending on goods and services in an economy over a given period of time
- AD=C+I+G+(X-M)
- SHIFTS
- it will shift right when there is a rise in C or any other injections
- AD will shift left when M rises as it is a withdrawal
- the multiplier effect
- ratio of change in national income to the change in expenditure that brought it about
- AS
- The curve slopes left to right because higher prices increase profitability of supplying output
- shifts
- to the left when cost of production rises
- higher wages, higher cost of raw material
- shifts to the right when cost of production falls
- to the left when cost of production rises
- AS curve is elastic at low levels of output, implying a high amount of spare capacity in the economy
- output can expand quickly in the short run with a rise in price level
- as AS moves closer to full employment the output becomes more inelastic
- Untitled
- as AS moves closer to full employment the output becomes more inelastic
- output can expand quickly in the short run with a rise in price level
- Factors affecting
- consumption
- disposable income
- if DI increases then so will C
- interest rates
- if they increase the C will decrease as the reward for saving has increased
- uneployment
- if the level of unemployment increase people may feel their position at their job isn't safe so will save more
- tax
- a rise in direct tax will mean less disposable income so C will fall
- a rise in indirect tax will increase prices so people will cut back on consuming
- consumer confidence
- when confidence falls people spend less
- disposable income
- investment
- is defined as spending across assets which are used continusouly over a period of time to produce goods or services
- changes in AD
- The accelerator model stresses that investment is demand induced when firms have insufficient capacity they must invest when demand increase
- IR
- Untitled
- consumption
- objectives
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