Trade balance of goods/services, Transfer balance(e.g. foreign aid) + Investment Income Balance (foreign investment income minus income going to foreign investors)
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Relative Importance of AD components?
(C) = 60% of AD, (G) = 25% , (I) is around 15% and net exports (X-M) = 1% of AD
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Factors affecting Consumption
Disposable income, interest rates, confidence + inflation; all affect MPC/MPS
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What does the Keynes term 'animal spirit' mean in terms of Investment
A particular sort of confidence; ‘naive optimism’, where people take too many risks due to rising market
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What is the main Influence of Gov. Spending
Business cycle + Fiscal policy
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Factors affecting UK Trade Balance?
Imports(normal/necessity goods), Exchange rates, growth of other economies + protectionism
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Influences of Long run AS vs Short Run
LR = changes in quantity/quality (tech./productivity/education+skills/regulation/migration), SR = changes in costs of production (changing raw materials prices/fluctuating ER/tax rate)
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Classic vs Keynesian LRAS
Classical; economy always producing at maximum potential output // Keynesian; there can be spare capacity and as it continues to be used up, price level increases
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Injections and leakages within the Circular Flow of Income?
How can level of Injections/Withdrawls affect economy?
If Injections > Withdrawals, total flow of money increases thus there is economic growth
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What is the Multiplier Ratio?
Ratio of a change in equilibrium real income to the autonomous change (the injection) that brought it about
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Factors affecting size of Multiplier?
Size of Withdrawals; how much is saved, spent on imports or taxed (MPS, MPM, MPT)
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Formula for Multiplier?
1/MPW
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Difference between Actual and Potential Growth?
Increase in real GDP vs. Increase in capacity of economy
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What type of Growth have China specifically benefited from?
Export-led
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What is the Output Gap?
Difference between actual real GDP and maximum potential real GDP
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Which LRAS curve can output gaps(negative) occur in the Long Run?
Keynesian
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Which curves are needed to show Short Term Output Gaps?
AD, LRAS + SRAS
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Costs of Economic Growth?
Negative impact on the environment as non-renewable resources are used up (Externalities), increase in Relative Poverty/Income Inequality, falling Int. Competitiveness due to inflationary pressure + worsening Trade Balance (rising imports)
QE; 1. BOE generates money + buy assets(Gov. bonds), injecting new supply 2. Price of bonds rise due to demand; reduces yield**Wealth Effect 3. Encourages movement to new assets(financial investments) 4. Rise in investment for banks = more lending
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Direct Vs. Indirect Tax?
Tax on income Vs. Tax on goods/services bought
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Factors affecting MPC in setting IR?
Confidence, Spare Capacity, Wage growth, Unemployment + current ER
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Types of Supply-Side policy?
Market-Based(allowing the forces of supply and demand to eliminate equilibria imbalances) + Interventionist(Government intervening in markets to achieve a goal)
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Examples of Market based?
Reduction in Tax(direct), Privatisation, Removing Min. Wage + Encouraging free trade
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