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Description
Flashcards by Sophie Knight, updated more than 1 year ago
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Created by Sophie Knight
over 8 years ago
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| Question | Answer |
| what is aggregate demand? | Total planned expenditure on goods and services produced in a country |
| what is the equation for AD? | AD = C + I + G + (X-M) |
| What are the 3 ways of explaining the downward sloping AD curve? | 1. Lower prices mean international competitiveness so net exports rise at lower prices 2. Total spending is fairly even at every price level as there is the same amount of money in the economy to spend = real balance effect 3. At high price levels, interest rises so investment falls and savings rise |
| What are the 4 determinants of consumption? | 1. Level of income 2. consumer confidence 3. Interest rates 4. Housing market |
| What is gross investment? | The amount of investment before any account is taken of depreciation of assets |
| what is net investment? | Investment that takes into account the fall in value of capital assets. It is more useful to look at the productive capacity of a country. |
| What are the 5 influences on investment? | 1. Interest rates 2. Interest elasticity of demand 3. Demand for exports 4. Credit access 5. "animal" or herd instincts |
| What is the trade cycle? | The pattern of economic growth which changes from booms to recessions in a fairly regular pattern |
| what is fiscal policy? | The deliberate manipulation of government spending and taxation in order to influence the level of AD in the economy |
| How do the views on fiscal policy by Classical economists differ from that of Keynesian views? | Classical economists believe that fiscal policy is purely inflationary Keynesian view is that it is a powerful tool in shifting AD, especially due to the multiplier |
| What are the 5 reasons for a change in Net trade? | 1. Level of real income 2. Exchange rate 3. Global economy 4. Degree of protectionism 5. Non-price factors like quality |
| What is the PED of exports and imports likely to be and why? | In the short run it is likely low due to international contracts or traded components only being a small percentage of a firms spending |
| Give 5 things AS influenced by | 1. Production costs 2. Investment levels 3. Supply-side-policies 4. Availability of factors of production |
| what is the difference between shifts in long run AS and short run AS? | Short run shifts show that there are changes in the cost of production but productive capacity remains the same Long run shifts are when all the factors of production are variable |
| Name 3 things that could cause a short run shift in AS | 1. Changes in costs of raw materials 2. Changes in exchange rates 3. Changes in tax rates |
| How do the 2 views of long run AS differ? | Classical - the economy will be working at full capacity so vertical Keynesian - equilibrium can occur below the full employment level |
| what are the 3 sections of the long run AS curve according to the Keynesian view? | 1. Spare capacity 2. Bottle necks 3. Full capacity |
| What is a bottleneck? | Where restrictions in the capacity to increase production occur, meaning that prices will rise as output rises |
| What are the 4 changes in the labour market that may cause a shift in AS? | 1. Changes in relative productivity - UK compared to trading partners 2. Changes in education and skills 3. Demographic changes and migration 4. Increasing in health spending |
| What are the 3 ways that the product market could result in a shift in AS? | 1. Technological advances 2. Changes in government regulations 3. Competition policy and reduction in barriers to international trade |
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