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  • Created by: samsam001
  • Created on: 22-03-14 14:44
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    • 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
      • 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
    • 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
      • 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


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