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7 Cards in this Set
- Front
- Back
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Where does equilibrium occur?
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Where AE (aggregate expenditure) equals AS
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What does the Keynesian expenditure model show?
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It shows the economies natural tenedancy towards equlibrium.
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AE equation
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AE = C + I + G + (X - M)
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Components of AE & % they make up
volatile or stable |
Consumption - 60 % stable
Govt. Expenditure 25 % stable Private Investment 14 - 23% volatile Net Exports -2% stable |
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Factors influencing consumption expenditure
Hint: 6 |
1. Disposable Y - spend more when Y is higher
2. Expectations - interest rates, Ue - positive or negative confidence affects spending patterns 3.Interest rates - fall, people have more to spend rise, repayments increase & less to spend 4. Personal wealth - people spend more when the value of their assets rise Govt. Policy - fiscal affects Yd thru taxation measures, monetary affects interest rates and cost of credit Distribution of income - how income is spread thru the community e.g. old age pensions |
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Factors influencing investment expenditure
Hint: 5 |
1. Rate of interest - real rate rises = investment falls. real rate falls = investment rises
2. Business expectations - take on current activity, influenced by retail slaes etc. 3. Profitability - retain profits for expansion, increased productivity & profitability thru new capital equipment 4. Govt policy - govt invest in infrastructure & provide incentives 5. risk - investments rise or fall through percieved risk. Greater risk - smaller investment levels. |
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Factors influencing govt expenditure
Hint: 2 |
1. welfare payments - vary due to economic conditions
2. cyclical fluctuations - spend more in a trough |
