the total value of goods and services produced in an economy in 1 financial year at various price levels
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REASONS FOR DOWNWARD SLOPING AD
INCOME EFFECT. SUBSTITUTION EFFECT. INTEREST RATE EFFECT
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CONSUMPTION
total money spent by consumers on consumer goods. main component of AD, 60% of GDP.
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INFLUENCES ON CONSUMER SPENDING
INTEREST RATES- cost of debt/mortgage-disposable income. value of shares-wealth effect. incentive to save/spend. CONFIDENCE-expected inflation increase C in SR, decrease in LR. expected tax rises. fears of unemployment. WEALTH EFFECTS-house prices. R
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MARGINAL PROPENSITY TO CONSUME
how much a rise in income affects consumption. lower income people tend to have a higher MPC. MPC+MPS=1.
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INVESTMENT
the addition of capital goods into the economy. 10-15% of AD. dependent on whether it is net or gross investment.
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GROSS INVESTMENT
the total amount of investment ignoring the levels of depreciation of capital
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NET INVESTMENT
the total amount of investment taking into account the value of depreciation of assets.
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INFLUENCES ON INVESTMENT
ACCELERATOR EFFECT. KEYNES ANIMAL SPIRITS-confidence/expectations-irrational. GOVT INTERVENTION-subsidies, tax. ACCESS TO CREDIT-high risk, recession. DEMAND FOR EXPORTS-keep up w demand. BUSINESS CONFIDENCE. INTEREST RATES. RATE OF GROWTH
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GOVERNMENT EXPENDITURE
spending on state-provided goods and services including public goods and merit goods. 18-20% of GDP. impacts are dependent on changes in tax. if G increases by the same proportion as T, no overall increase in AD as C decreases also.
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INFLUENCES ON GOVERNMENT SPENDING
FISCAL POLICY- demand side policies imposed on level of spending/taxation in order to influence AD. TRADE CYCLE- recession, G increases to reduce unemployment, automatically increases as benefits. boom- reduce G to decrease AD and reduce inflation.
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NET TRADE
the difference between exports and imports of a country. trade deficit M>X. trade surplus X>M.
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INFLUENCES ON NET TRADE BALANCE
REAL INCOME- demand for imports, MPM. EXCHANGE RATES- spiced. STATE OF WORLD ECONOMY- trade partners. DEGREE OF PROTECTIONISM- tariffs and quotas. NON-PRICE FACTORS- quality + marketing affecting elasticity.
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Other cards in this set
Card 2
Front
REASONS FOR DOWNWARD SLOPING AD
Back
INCOME EFFECT. SUBSTITUTION EFFECT. INTEREST RATE EFFECT
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