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chapter 6 - Coggle Diagram

- - - - leakages in the economy (like savings, taxes)
- - - - changes in economic outlook: affects level of investment
      - changes in interest rates: affect investment and consumptions
      - changes in foreign incomes: affect exports level
  - - - less money, less demand
        
        marginal propensity diminishes with increasing income (coz they alr have the things they need, so no need to buy more)
      - more money, average propensity to save increases and average propensity to consume decreases
    - - fiscal policy : if govt raises income tax then disposable income fall and consumption falls
      - changes in interest rates: if interest rates fall, cost of borrowing fall and consumers are encouraged to borrow more to spend more. this also means that the returns on saving is lower so individuals may increase current consumption
      - income and wealth distribution: if value of consumers other assets such as houses, cars, etc increases, consumers confidence increases and cause consumers expenditure to increase
      - expectation: if prices are gonna increase, consumers will buy goods right now
- - - - savings, taxes, imports
    - - investments, government expenditure, exports
- - - - factors affecting sras
        
        COST OF PRODUCTION: price of inputs such as materials, wage
        
        short terms supply shocks: due to bumper harvests and natural disasters/ supply chain disruption
      - SRAS SHIFT UP/ DOWN
    - - determined by the productive capacity of the economy. Yf is the long run equilibrium output at full employment level (straight line)
      - factors affecting LRAS (QQT)
        
        quantity - capital stock: if firms have high capital stock then firms can produce more goods and services. this can be affected by the level of investment firms put in.
        
        quantity/ quality - labour force: expanded labour force who are more skilled will increase economy's potential output
        
        technology - changes in productivity of factors of productions: better machinery and equipment --> more output but with the same amount of resources --> long term increase in LRAS
        
        long term destruction/ loss of factors of production
        
        major earthquakes/ wars may cause loss of physical capital -> fall in productive capacity and leftward shift of LRAS
      - LRAS SHIFT RIGHT/LEFT + need to indicate YF