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AggregateExpenditure
Factors Affecting
| Question | Answer |
|---|---|
| Level of Disposable Income; What is it and how does it affect Consumption Spending? | -main determinate-households spend more on consumption when income is increased. |
| Expectations (3):What is it, how is it made and how does it affect consumption? | -affects willingness to spend-shaped by past (govt. policy, interest rates, level of unemployment)-Affects consumption of expensive items |
| Cost of Credit: Also known as _____, has two affects on consumption why and how so? | -Interest Rates- Repayments on borrowed funds falls taking up a lesser slice of income so more money on consumption-opportunity cost expenditure on consumer items fall so spend or save. Interest falls savings fall because of lower return. |
| Personal Wealth: How does it affect consumption and why? | -Households holding property or shares 'feel wealthier when value of assets are rising.- so are more likely to spend on durable consumption. |
| Government Policy: 2 ways, examples and why. | -Fiscal policy (eg. taxation) affects level of disposable income.-Monetary Policy (eg. Interest Rates) affects cost of credit. |
| What are factors affecting Consumption Spending? | Level of disposable income, expectations, cost of credit, personal wealth and government policy. |
| What are factors affecting Investment? | Risk, Rate of Interest, Business Expectations and Government Policy. |
| Risk; Why is it there, how is it determined and why. | -the future is unknown so there is risk involved.-investment affected by percieved risk.-risk is determined by political decisions, international events and changes in consumer tastes. |
| Rate of Interest; How is it related to Investment and why? | -Are negatively related; low interest rates have high investment-rates represent price of borrowed money and opportunity cost of money |
| Business Expectations: What is it? How is it Formed? How does it Affect? | -is what a business thinks of current economic activity, forecasts for future and impact on profitability.-Formed on level of sales and enquiries from buyers.- epectations positive= investment increase, expectations negative= investment reduction |
| Government Policy; How does it affect Directly and Indirectly? | -directly- incentives for business (subsidies) in a period of low economic activity-Indirectly-Fiscal and Monetary Policy (taxation) because affect business costs. |
Created by:
Chrissy3421
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