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30 Cards in this Set
- Front
- Back
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Gross investment |
The addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital. |
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Investment definition |
The addition to the capital stock of the economy. |
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Net investment |
Gross investment - depreciation |
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Retained profit |
Profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation. |
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Government spending |
Only considered to be spending (or part of AD) if the government is using the money to buy goods and services. |
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Transfer payment |
Money is a gift paid by the government without anything in return e.g. state pension |
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Determinants of government spending |
1. Size of GDP 2. Tax rates 3. Political choices 4. Ability to borrow |
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Export |
Good or service sold to another country in return for money/payment. |
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Import |
Good or service bought from another country in return for money/payment. |
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Import and export impacts on AD |
- Exports create demand - X > M = AD + - Imports reduce demand - X < M = AD - |
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Determinants of exports and imports |
1. Exchange rate
2. Country's natural resources 3. Protectionism 4. Competitiveness |
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Exports and imports - Exchange rate
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- The price of one currency in terms of another - Appreciation (SPICED) - Depreciation (WPIDEC) |
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Appreciation |
1. Export prices increase 2. Import prices decrease = AD decrease (dependant on elasticity) |
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Deppreciation |
1. Export prices decrease 2. Import prices increase = AD increase (dependant on elasticity) |
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Exports and imports - Country's natural resources |
Natural resources are becoming less important in determining GDP. |
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Exports and imports - Protectionism
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1. Tariffs = tax on imports so the greater the tariffs the less exports and imports 2. PED of imports and exports |
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Exports and imports - Competitiveness
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Germany established themselves as having low-prices, high-quality technological products |
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Short run |
The period of time in which at least one factor of production is fixed i.e. firms cannot change it. |
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Short run aggregate supply curve direction |
- Left to right upwards sloping - Due to higher prices being required to cover increased costs e.g. wages |
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Non-fixed factors |
Wages and raw materials |
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SRAS shift to the left |
- Increase in prices of non-fixed factors - Implies costs have increased e.g. wages |
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SRAS shift to the right |
- Decrease in the price of non-fixed factors - Implies that costs have decreased |
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Classical view of what should happen following a collapse in demand |
1. AD shock 2. Sales decrease 3. Prices decrease 4. Real wages increase 5. Unemployment increases 6. Wages decrease 7. Real wages decrease 8. Unemployment decreases |
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Difference between a classical view and a Keynesian following a collapse in demand |
Classical view 1. Wages decrease 2. Real wages 3. Unemployment decrease Keynesian view 1. Wages don't decrease 2. Unemployment increases |
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Full capacity |
The level of output where no extra production can take place in the long run with existing resources. The full capacity level of output for an economy is shown by the long run aggregate supply curve. |
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Circular flow |
Households to firms = Expenditure on goods and services & land, labour and capital Firms to households = Rent, wages, interest and profit & goods and services |
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Injections |
- Investment - government spending - exports |
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Withdrawals |
- Savings - taxes - imports |
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The Multiplier |
Final change in income/initial change in expenditure |
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Changes in the multiplier effect |
Upwards = increase in expenditure = unemployment increase Downwards = decrease in expenditure = unemployment decrease |
