Aggregate Demand
Total demand for all goods and services within an economy in a given time period
Real income effect on AD causing it to slope downwards
Real income effect - Lower price levels increase consumers’ spending power, allowing them to buy more things.
International effect on AD causing it to slope downwards
International effect - At lower price levels, domestic prices become relatively cheaper, but the quantity of exports increases.
Interest rate effect on AD causing it to slope downwards
Interest rate effect - At high prices, consumers do not make big deposits at banks, thus there are little loanable funds, causing interest rates to rise and investment and consumption to fall.
MPS
MPS is proportion of additional income that is saved
How will an increase in MPS affect the multiplier
If MPS increases this means that less money will flow around the circular flow of income each round of spending
Leakages have increased and multiplier will be lower
Cost push factor that can cause a rise in prices
Wages for workers involved in the production of good X increases
A reason for the difference in GDP AND GNI
Lots of immagrant workers in X country. They convert their money into money from home country
Difference between GDP/Capita and GDP/Capita at PPP
Cost of living in X country is high compared to Y country
How can a lower bank rate stimulate economic growth
Commercial banks will also lower interest rates due to competitive pressure
Businesses/Consumers will be less incentivized to save and more incentivized to spend
Asset prices likely to rise as people seek other forms of investment besides saving
Creates wealth effect and stimulus to spend
Exchange rates will fall which makes exports cheaper which shifts AD
Actual growth
Actual level of output at the current moment in time.
Equilibrium between AD and SRAS
Potential growth
Increase in max level of output possible within an economy when all resources are fully employed
Impact of fall in oil prices on AS curve
Fall in oil prices affects costs of production
SRAS Shifts right to reflect price level falling
Shift in SRAS causes an extension along AD curve and economic growth
EVAL:
Fall in oil prices doesnt affect quantity of resources in the economy so LRAS does not shift
Fall in oil prices may be offset by a change in other costs of production
Economic reforms that improves levels of private investment
Nationwide sales tax which encourages investors as system is simplified
Providing stability and a platform for business
New bankruptcy law which simplifies legal process for banks to recover debts owned by companies
Evaluating if economic growth will always be beneficial for consumers
Increase in income and as a result increase in PPP
Higher living standards as they can afford better quality goods
HOWEVER
May result in widening of inequality gap
Overconsumption of demerit goods which impacts living standards
Evaluating if economic growth will always be beneficial for government
Increase in tax revenue as more people are working and paying tax
Government spending can be cut as more people can afford private provision
HOWEVER
Inflation may push consumers into poverty which increases government spending on benefits
Evaluating if economic growth will always be beneficial for firms
Increase in demand leads to more sales for firms
Foreign investment may increased as international firms will seize the chance for more profit
HOWEVER
If consumers spend increased income on imports, domestic firms will not see much change in their revenues
Negative externalities of production
Fiscal deficit
When governments spend more money they raise from tax revenue meaning they have no income to fund their spending
Government budget defecit
When government spending is greater than revenue in one year
Government debt
Cumulative total of all money owed by government as a result of borrowing
Factors which shift SRAS
Changes in business running costs such as wages or indirect taxes
Factors which shift LRAS
Changes in maximum capacity of the economy represented by CELL
Effect on multiplier if MPC increases
MPS will fall
Multiplier will rise
Disinflation
Fall in the rate of inflation but not sufficient enough to bring about deflation
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Economic Growth18
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Microeconomics 1.124
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AS Microeconomics104
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AS Macroeconomics67
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Theme 1 25 Markers5
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Macro27
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3.14
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A2 Macroeconomics20
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A2 Microeconomics29
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v11380
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v113 ma55
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Normative and Positive Statements (1.1.2)3
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PPF and Opportunity Cost (1.1.3 & 1.1.4)13
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Specialisation (1.1.5)6
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Types of Economies (1.1.6)10
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Rational & Irrational Behaviour (1.2.1 & 1.2.10)5
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Demand and Supply (1.2.2 & 1.2.4)0
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Elasticities (1.2.3 & 1.2.5)0
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Consumer and Producer Surplus (1.2.8)0
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Market Failure (1.3)0
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Externalities (1.3.2)0
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Subsidies (1.4.1)0
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Indirect Tax (1.4.1)0
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Government Intervention in Markets (1.4.1)0
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Tradable Pollution Permits (1.4.1)0
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Government Failure (1.4.2)0
