It's the total level of planned real expenditure on the goods and services produced in an economy over a given time period.
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What is Consumption?
Consumer spending on goods and services. 60% of total AD
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What is Investment?
Firms spending on capital goods - growing the capital stock of an economy, working capital. For example, buildings and machinery
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What is Government Spending?
When the government spend on public and merit goods to provide for consumers.
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What is Net Exports?
Exports minus imports
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What is the AD curve?
A downwards sloping curve (demand) since a rise in price causes a fall in Real GDP.
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What is the Income Effect?
If prices rise at a faster rate than income does, consumption will fall as people can afford less goods and services.
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What is the Real Balance Effect?
If prices rise, money saved in banks will begin to be worth less than before so people start to save more and borrow less so consumption falls.
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What is the Substitution Effect?
If prices rise, products will look less attractive to foreigners so exports will decline, while imports will look more attractive to consumers so consumption of the economy's good and services will fall.
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What is the Interest Rates Effect?
When interest rates increase, people will save more and borrow less. Firms will start paying more money to workers as the demand for money increases. Businesses will invest less also.
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Other cards in this set
Card 2
Front
What is Consumption?
Back
Consumer spending on goods and services. 60% of total AD
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