AD

• define aggregate demand 


  the total demand in the economy as a whole
• state the formula for AD

  C+I+G+(X-M)
• what does the AD curve look like


  slopes downward because as prices fall demand rises

  
• how does consumer confidence affect AD

  as consumers become less confident about personal finances consumer spending falls so AD falls
• how do income levels affect AD

  if average income levels rise so will average consumer spending
• how does income tax affect AD

  increased income tax means spending falls so AD falls
• what is the effect of interest rates on consumer spending

  higher interest rates mean mortgages increase so spending falls. It also means big purchases are delayed. AD falls
• how is consumer confidence linked to business confidence

  as consumers are confident they make more purchases so business confidence increases
• how does business confidence affect AD

  if business are more confident then they are more likely to invest increasing AD
• how does corporation tax affect AD

  as corporation tax falls there is greater profit incentives at every price level increasing the incentive to invest. they will also have more profits to invest with.
• how do interest rates affect investment


  a fall in the cost of borrowing increases investment as it is cheaper.
• how does tax revenue affect government spending

  tax revenue has little effect ons peming as governments spend based on needs. an increase in tax would only reduce the deficit
• how do interest rates affect government spending

  lower interest rates may allow for governments to justify increased borrowing and therefore spending
• define the exchange rate


  the value of one currency expressed in terms of another
• define SPICED

  Stronger

  Pound

  Imports

  Cheaper

  Exports

  Dearer
• define WPIDEC

  Weaker

  Pound

  Imports

  Dearer

  Exports

  Cheaper
• what are influences on exports

  the main influence of exports is spending in foreign economies - increased foreign spending means more english exports are brought
• what affects volume of imports 


  UK spending determined by AD factors increasing increases imports brought. this increases in aboom and falls in a recession
• define savings


  the part of consumers incomes not spent - usually in banks earning interest
• how do interest rates affect savings

  when interest rates increase savings should increase due to an increased reward for saving
• how does consumer confidence affect savings

  less confidence reduces spending and increases saving
• how can income levels affect savings

  rising incomes can see both spending and savings increase at the same time
• define the multiplier


  an increases in injections leads to an increase in the size of the national income greater than the size of the initial injections
• what determines the size of the multiplier

  how much of the injection becomes a withdrawal
• what is the marginal propensity to consume 


  the proportion of additional income a consumer spends
• what is marginal propensity to consume always between 


  0 to 1 - percentage of the amount received that is spent
• what is the marginal propensity to save 


  the proportion of additional income a person saves
• what is true about MPC + MPS

  MPC + MPS = 1
• what are4 the two formulas for the multiplier

  1/MPS

  1/(1-MPC)
• define the accelerator 


  an increase in national income leads to an increase in investment greater as a percentage than the percentage increase in GDP
• how does the accelerator work

  -during low economic growth investment is low

  -little increases severely increase business confidence

  -once business confidence increases so does investment

  -1% increase in GDP may lead to a 5% increase in investment
• what are 3 main differences between the multiplier and the accelerator

  -the multiplier national income increasing is the effect whereas with the accelerator its the cause

  -multiplier effects all injections whereas the accelerator only impacts investment

  -multiplier delas with monetary values whereas the accelerator is percentage changes