Aggregate Demand and Aggregate supply.
Aggregate demand: The total demand for a country's goods and services at a given price level and in a given time period
Rule for AD= C+I+G+(x-m)
Definitions:
Consumer expenditure: spending by households on consumer products.
Investment: spending on capital goods.
Government spending: spending by the central government and local government on goods and services.
Exports: products sold abroad.
Imports: products bought from abroad.
Net-exports - the value of exports minus the value of imports.
Trade surplus: the value of exports exceeding the value of imports.
Trade deficit: the value of imports exceeding the value of exports.
Trade deficit: the value of imports exceeding the value of exports.
Definitions:
Inflation: a sustained rise in the price level
net savers:people who save more than they borrow.
Wealth: a stock of assets.(property,shares,money held in savings account)
SAVINGS.
Influences on savings include:
1)real disposable income:average propensity to save rises.
2)the rate of interest:rise in it increases the reward for saving and so usually encourages people to save more.
3)confidence and expectations:people and firms are usually tend to save more,if they are not confident about their future.
4)saving schemes:when people agree to save a certain amount on a regular basis in insurance and pension schemes.
5)Government policies:a decision by the government to introduce tax-free saving schemes will encourage people to save more.
6)the age of a people: young people tend to spend more and the middle-age group of people usually save more than they spend.
Definitions:
dissave: spending more than disposable income
Savings ratio: savings as a proportion of disposable income
INVESTMENT
influences on investment include:
1)changes in real disposable income:if real disposable income increases,it is mean that demand for goods and services will also rise.
2)expectations:firms more likely to invest,if they are confident about their economic future.
3)capacity utilisation:firms are also tend to invest more if they are operating near to full capacity.
4)current profit levels:high profit levels can encourage investment in two ways:they provide finance to invest and they are likely to contribute to firms' optimism about the future.
5)corporation tax: if there is a cut in tax,firms will have more money,therefore more investment.
6)the rate of interest:a rise in interst rate likely will decrease the investment.lower demand for shares will reduce their price level and so decrease the funds that firms can raise for investment.
7)advanced technology:firms can invest money in machinery,in purpose to incsease the profit or quality of the products.
8)price of capital equipment:a reduction in capital equipment may also rise investment.
Influences on savings include:
1)real disposable income:average propensity to save rises.
2)the rate of interest:rise in it increases the reward for saving and so usually encourages people to save more.
3)confidence and expectations:people and firms are usually tend to save more,if they are not confident about their future.
4)saving schemes:when people agree to save a certain amount on a regular basis in insurance and pension schemes.
5)Government policies:a decision by the government to introduce tax-free saving schemes will encourage people to save more.
6)the age of a people: young people tend to spend more and the middle-age group of people usually save more than they spend.
Definitions:
dissave: spending more than disposable income
Savings ratio: savings as a proportion of disposable income
INVESTMENT
influences on investment include:
1)changes in real disposable income:if real disposable income increases,it is mean that demand for goods and services will also rise.
2)expectations:firms more likely to invest,if they are confident about their economic future.
3)capacity utilisation:firms are also tend to invest more if they are operating near to full capacity.
4)current profit levels:high profit levels can encourage investment in two ways:they provide finance to invest and they are likely to contribute to firms' optimism about the future.
5)corporation tax: if there is a cut in tax,firms will have more money,therefore more investment.
6)the rate of interest:a rise in interst rate likely will decrease the investment.lower demand for shares will reduce their price level and so decrease the funds that firms can raise for investment.
7)advanced technology:firms can invest money in machinery,in purpose to incsease the profit or quality of the products.
8)price of capital equipment:a reduction in capital equipment may also rise investment.
Government spending.
Definition: Spending by the central bank and local government on goods and service.
Government spending decision are influenced by a number of factors.
1)the government's view on the extent of market failure and its ability to correct it.
2)the level of economic activity in the economy can influence government spending.
3)a desire to please the electorate. voters can put pressure on the government to spend money improving education, health care and transport infrastructure.
4)war, terrorist attacks and rising crime or their threat can also increase government spending.Definitions:
2)the level of economic activity in the economy can influence government spending.
3)a desire to please the electorate. voters can put pressure on the government to spend money improving education, health care and transport infrastructure.
4)war, terrorist attacks and rising crime or their threat can also increase government spending.Definitions:
Real GDP: GDP after inflation
Gross domestic product(GDP): the total output of goods and services prodused in a country.
exchange rate:the price of one currency in terms of another currency.
Government bond: a financial asset issued by the central or local government as a means of borroing money.
Aggregate supply.
Aggregate supply the total amount that producers in an economy are willing and able to supply at a given price level in a given time period.
Definitions:Productivity: output,or production, of a good or service per worker per unit of a factor of production in a given time period.
Macroeconomic equlibrium: a situation where aggregate demand equals aggregate supply and real GDP is not changing.
Privatisation: transfer of assets from the publuc sector to the private sector.
Macroeconomic equlibrium.
if AD would be more than AS, there would be a shortage of goods and services.
The excess AD would encourage them to expand their output. The surplus AD may also push up the price level, depending on the leve of capacity.
AS exceeding AD would also lead to pressures that would move the economy back to eqilibrium.
if AD would be more than AS, there would be a shortage of goods and services.
The excess AD would encourage them to expand their output. The surplus AD may also push up the price level, depending on the leve of capacity.
AS exceeding AD would also lead to pressures that would move the economy back to eqilibrium.
Circular flow of income:the movement of spending and income throughout the economy.
Factor services:the services provided by the factors of production.
Leakages:withdrawals of possible spending from the circular flow of income.
Injections:additions of extra spending into the circcular flow of income.
Multiplier effect: when adding injections into the economy results in the greater rise in national income.
Factor services:the services provided by the factors of production.
Leakages:withdrawals of possible spending from the circular flow of income.
Injections:additions of extra spending into the circcular flow of income.
Multiplier effect: when adding injections into the economy results in the greater rise in national income.
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