Macro C

Aggregate demand

Total planned spending on the goods and services produced within the economy in a particular time period. Its components are C+I+G+(X-M).

Aggregate Supply

The aggregate level of real output that all the firms in the economy plan to produce.

Long-run aggregate supply

The real output that can be supplied when the economy is on its production possibility frontier.

Multiplier effect

When an increase of an injection leads to a larger increase in Real GDP.

Output gap

The difference between the current level of real GDP and the potential output of the economy.

Saving

Income that is not spent.

Consumption

Spending on domestic goods and services by households.

Investment

Spending on capital goods by firms

Government spending

Spending by the government. Either current spending or capital spending

Marginal propensity to consume

The proportion of additional income that is used for consumption.

Disposable income

Income after direct taxes have been paid

Accelerator effect

The accelerator effect states that investment levels are related the rate of change of GDP. Thus an increase in the rate of economic growth will cause a correspondingly larger increase in the level of investment

Consumer confidence. what is it based on?

Consumer confidence is the degree of optimism consumers feel about the economy and their personal financial situation, which influences their willingness to spend or save (MPC). They are based on level of Unemployment and Job prospects.

Business confidence

Business confidence describes the forward-looking expectations of firms. they look towards future demand and future profits.

Exports

Goods and services sold to a foreign economy

Imports

Goods and services purchased from a foreign economy

Exchange rate

The price of one currency in terms of another

Appreciation of the pound

When a pound can buy more of another currency. This makes imports relatively cheaper and exports dearer (more expensive) for a customer in another country using a foreign currency. Think SPICED.

Depreciation of the pound

When a pound can buy less of another currency. This makes imports relatively more expensive and exports cheaper for a customer in another country using a foreign currency. Think WPIDEC.

what are the determinants of consumption (AD= C + I + G + (X-M))

level of disposable income after tax

interest rates

consumer confidence

assets price (wealth)

what are the determinants of Investment (AD= C + I + G + (X-M))

interest rates

business confidence

corporation tax

spare capacity

level of competition

price of capital

describe the chain of reasoning for a POSITIVE accelerator effect (start with definition)

a positive accelerator effect occurs when an increase in the rate of growth of consumer demand leads to a rise in planned investment by firms

They do this so they can meet the rising demand

As a result of an increase in net investment, capital stock increases and the amount of capital per worker will grow

this will lead to an expansion of a nation’s productive potential

this will then contribute to an increase in the long-run trend economic growth of a country

what are the different types of Government spending. What do they mean and which one is the largest proportion.

current spending- day to day spending on maintaining public sector services and public sector wages

capital spending- spending on infrastructure/ capital

welfare spending (the larges proportion of spending) - spending on pensions and benefits

debt interest payments