4. Determinants of consumption, net exports, saving and investment

Correlates to video 5

What is consumption

The total spending on goods and services by households in the economy

What are 2 good terms to use to explain determinants of consumption?

MPC (Marginal propensity to consume)

Multiplier effect

What are the 5 factors that affect determinants of consumption?

Level of real disposable income

Interest rates

Consumer confidence

Asset prices

Household indebtness

What 2 factors affect consumer confidence?

Job prospects

Level of unemployment

What are the 6 determinants of saving?

Level of real disposable income

Interest rates

Consumer confidence

Trust of financial institutions

Tax incentives

Age structure of population

What are the 6 determinants of investment?

Interest rates

Business confidence

Corporation Tax

Spare capacity

Level of competition

Price of capital

What are the 2 things affecting business confidence?

Expected profit

Expected demand in the economy

What is the accelerator effect?

If rate of real GDP increases, encourages more investment, and then this increases GDP causing a loop

How to talk about net exports 2

Expenditure on imports

Revenue from exportds

What are the 5 determinants of net exports?

Real disposable income earned abroad

Real disposable income earned at home

Strong or weak exchange rates

Protectionism at home and abroad

Relative inflation levels at home