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22 Cards in this Set
- Front
- Back
Consumption
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total planned household spending
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consumption function
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disposable income; its position depends on the other factors that affect how much households spend on consumption |
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Disposable income
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the income that households have to devote to consumption and saving, taking into account payments of direct taxes and transfer payments(benefits and pensions) |
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Average propensity to consume
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The proportion of overall household disposable income devoted to consumption |
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marginal propensity to consume (MPC)
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the proportion of any INCREASE in disposable income that households would devote to consumption
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marginal propensity to save (MPS)
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the proportion of any INCREASE in disposable income that households would devote to saving |
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Aggregate demand
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the total amount of spending on G&S produced in an economy during a period of time
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Aggregate Demand curve
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the relationship between the level of AD and the overall price level; it shows planned expenditure at any given possible overall price level |
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real balance effect |
A change in aggregate expenditures (C+I+G+(x-m)) on real production that results because a change in the price level alters the purchasing power of money. The higher the price level the lower the purchasing power of money. |
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interest rate effect |
A change in aggregate expenditures on real production, especially those made by the household and business sectors, that results because a change in the price level alters the interest rate which then affects the cost of borrowing. If price levels fall then The Bank of England may reduce interest rates to stimulate demand and therefore AD increases. |
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net trade effect |
A change in aggregate expenditures on real production that results because a change in the price level affects demand for exports and imports. If domestic price levels fall then demand for exports rises and imports falls, ceteris paribus. |
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Wealth effect |
the effect upon consumer or corporate spending caused by a change in the value of assets, such as property prices or share prices. When asset prices are rising, households and firms feel more comfortable and secure about their wealth, causing them to spend more. |
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Investment |
Expenditure undertaken by frims to add to the capital stock (= spending on new capital goods) |
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Depreciation (of capital goods) |
The fall in the value of physical capital equipment over time as it is subject to wear and tear |
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Net investment |
Gross investment minus depreciation |
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Interest rate |
the cost of borrowing money expressed as a % of the total borrowed |
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Corporation tax |
a direct tax levied on business profits |
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Net exports |
value of spending on imports minus value of spending on exports |
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Fiscal policy |
Decisions made by government on levels of spending, taxation and borrowing |
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Exchange rate |
the price of one currency in terms of another |
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currency appreciation |
an increase in the value of one currency in terms of another |
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currency depreciation |
an decrease in the value of one currency in terms of another |