Notesale: Turn your study into money

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● AD = Consumption + Investment + government spending (G - T) + trade
(X-M)
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● There’s a movement along the AD curve when the price level changes
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● There are three reasons why the AD curve is downwards sloping =
savings (if saving increases, then consumption and investment decrease), low
price level (net exports and consumption increase) and total spending (always
roughly the same because people have the same amount of money to spend)
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This is called the real balance effect
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g
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(Disposable income = income remaining after the deduction of taxes, which is
available to be spent or saved as one wishes)
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Big impact on mortgages
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● Consumer confidence (e
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low unemployment and good job prospects
leads to a shift in AD)
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● Wealth effects (stock) - (increase in assets leads to people feeling wealthier,
so they are likely to spend more of their disposable income… even if their
money is tied up/inaccessible in shares
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3 Investment (15% of AD)
● Investment = spending on capital goods (e
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machinery)
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● Business expectations and confidence (expectation for profit and expected
demand in the economy
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● Corporation tax (level of retained profits will increase if corporation tax
decreases)
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● Level of competition (more competition = more investment)
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● The influence of government regulations
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● Demand for exports
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*Animal spirits = the mixture of confidence, trust, mood and expectations which
businesses and consumers have
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Accelerator effect = if the rate of real GDP in an economy is increasing, this leads
to increased investment which will increase real GDP, etc…
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● Capital spending = government spending on infrastructure projects
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● Trade cycle = the pattern of economic growth which changes from booms to
recessions or slow growth in a fairly regular pattern
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● Budget surplus = taxes are greater than spending in a fiscal year
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Influences on government expenditure include:

● Trade cycle (in a boom period, government expenditure is likely to fall as
there is less demand for benefits (e
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JSA) and tax revenue is likely to rise
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● Debt interest payments (national debt also influences government spending
as interest has to be paid on debt and if the government continues to
overspend there will be a cost for future generations
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g
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● Fiscal policy = the deliberate manipulati

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