Definitions

Question	Answer
Consumption	The total planned spending by households on real output produced within the economy.
Investment	The total planned spending by firms on real output produced within the economy.
Interest Rate	The rewards for lending savings and the cost of borrowing.
Personal Savings Ratio	The actual personal savings divided by personal disposable income.
Accelerator Effect	A change in the level of investment in new capital goods induced by a change in national income.
Long Run Aggregate Supply	The economy's productive capacity.
Supply side shock	Something that will either increase or reduce the costs and hence the supply side of all firms in an economy
The 6 Determinants of Consumption	1.Interest rates 2.Level of disposable income 3.Future expectations of income 4.Wealth 5.Consumer confidence 6.Availability of credit
The 4 Determinants of Investment	1.Expectations of entrepreneurs and investors 2.Interest rates 3.The nature of technological progress 4.Relative price of capital and labour
Factors affecting Short Run Aggregate Supply	1.Wage rates 2.Interest rates (banks) 3.Import prices (Raw materials etc) 4.Corporation Tax
Factors affecting Long Run Aggregate Supply	1.Technological progress 2.Attitudes and Enterprise 3.Macroeconomic Policies 4.Productivity (eg Labour) 5.Capital investment
What is aggregate demand?	The total planned spending on real output produced in an economy. C + I + G + (X-M)

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	Created by david.b.smith33 about 11 years ago