Unit 2 - The UK economy - performance and policies
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A* Summary for AD+multiplier
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Unit 2 - The UK economy - performance and policies
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PEARSON (PEARSON)
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Unit 2 - The UK economy - performance and policies
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2.2 Aggregate demand (AD)
2.2.2 Consumption (C) (60%)
Def: Consumer spending is the expenditure from household on goods and
services that contributes to the rise in GDP of a country’s economy
A) Disposable income
B) Wealth (houses//pensions)
Housing Pension
As house prices rise = the equity As share prices rise = the equity
you hold becomes more valuable = you hold becomes more valuable =
u feel yourself wealthier = willing u feel yourself wealthier
to borrow more and save less for consume more at present and save
present consumption C rises less increase C
*since Jan 2015, house prices rose by 45%
C) Interest rate
D) Consumer confidence
E) Availability of credits
2.2.3 Investment (I) (15%)
Def: The addition to capital stock
E.g. robotics, machines tool, infrastructure, software, logistics (containerization/lorries)
1) Interest rate
2) Firms confidence
3) Availability to credit
4) Government influence on regulations e.g. corporation tax
Factors affecting current acc. (import and export)
1. Exchange rate
2. State of the economy e.g. recession for trading partners
3. Degree of protectionism
4. Non price factors like quality of goods, level of tech.
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