5224800
Description
Flashcards by Tara Pugal, updated more than 1 year ago
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Created by Tara Pugal
about 8 years ago
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| Question | Answer |
| What is consumer spending? | spending by households on goods and services |
| What is the biggest component of AD? | C |
| What are the main sources of consumer Y? | wages savings investments pensions benefits |
| What is the marginal propensity to consume? (MPC) | the rate at which consumers increase their consumption as Y increases |
| What is the marginal propensity to save? (MPS) | the rate at which consumers increase their savings as Y increases |
| What does the MPC + MPS always equal? | 1 |
| Which group of people generally have a higher MPS? | people on lower Y |
| What are factors that determine consumer spending? (6) | real Y direct & indirect T ir household wealth consumer confidence distribution of Y |
| How do real Y determine C? | if people's wages rise faster than prices, real Y will increase = higher level of real purchasing power |
| How does direct & indirect T determine C? | if there is a cut in direct T, consumers will see ↑Y and spending power however if ↑T (indirect) = ↑P and ↓Y |
| How do ir determine C? | ↓ir = cuts the cost of paying the debt on a mortgage and ↑the effective disposable Y of homeowners |
| How does household wealth determine C? | e.g. a sustained ↓P of houses may = ↓personal wealth, ↓C as homeowners have less housing equity available to borrow (this is the negative wealth effect) |
| How does consumer confidence determine C? | e.g. fears of ↑U and expectations of ↑T = ↓consumer confidence and encourages saving |
| How does the distribution of Y determine C? | lower Y families tend to have ↑MPC therefore a redistribution of Y towards poorer families may boost total consumer D |
| What is the wealth effect? | consumers tend to spend more when there is a market (in which share prices are rising) in widely-held assets like real estate or stocks, because rising asset prices make them feel wealthy |
| What are the two types of consumer borrowing? | unsecured secured |
| What is unsecured borrowing? | a loan/overdraft not tied to the value of another asset |
| Give an example of unsecured borrowing | student overdraft bank loan |
| What is secured borrowing? | lending where the borrower must use another asset as collateral for the loan |
| Give an example of secured borrowing | a mortgage with a bank/building society |
| What is I? | spending on K goods |
| What is I an effecting factor of? | competitiveness in a globalising world |
| What is infrastructure? | spending on new roads, wind farms, telecommunications etc by the private and public sectors |
| What is the relationship between AD and I? | ↑I = positive multiplier effect (PME) = ↑AD |
| How does I create and destroy jobs? | creates jobs in producing, designing etc destroys jobs to be replaced with machinery |
| What is the multiplier effect? | when new injections of D for goods + services stimulate further rounds of spending = expansion of output, Y and profits |
| What is a positive multiplier effect? (PME) | when an initial increase in an injection (or a decrease in a leakage) = a greater final ↑GDP |
| What is a negative multiplier effect? (NME) | when an initial decrease in an injection (or increase in a leakage) = a greater final ↓GDP |
| What does the multiplier effect require? | sufficient spare capacity for extra output to be produced |
| What is crowding out? | where either ↑G or ↓T can = ↑gov borrowing and/or = ↑PL = ↑ir = ↓C/I = ↓AD = ↓GDP |
| When will the multiplier effect be greater? | MPS extra Y on domestic goods + services is high consumer confidence is high firms have the capacity to expand production to meet increases in D |
| What happens when SRAS is highly elastic? | the multiplier effect is likely to be high |
| What happens when SRAS in inelastic? | the harder is it for SRAS to expand to meet rising AD |
| What is the accelerator effect? | the relationship between planned I and the rate of change of national Y (GDP) (a surge in I by businesses when an economy is growing quite strongly |
| Give an example of the accelerator effect | where a given change in D for consumer goods+services = a bigger % change in D for K goods |
| What is the negative accelerator effect? | when the rate of growth of D in an industry slows, then net I fall |
| What is the economic importance of infrastructure I? (3) | potentially high multiplier effects lack of infrastructure may discourage FDI ↑K stock/productive potential |
| What is the circular flow of income? | the flows of goods + services and Y to factors of production |
| What are injections into the circular flow? | I X G |
| What are withdrawals from the circular flow? | savings T M |
| When is an economy in equilibrium? | when the rate of injections = the rate of withdrawals |
| What does an ↑net injections do? | ↑GDP, ↑Y |
| What does ↑net withdrawals do? | ↓GDP, ↓Y |
| What happens when a gov is operating an ExFP and with a bigger budget deficit? | G > T revenues (injections > leakages) = ↑GDP |
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