Notes

|W| WITHDRAWALS = S + T + M
∙ |S| net savings : part of the income that not to spent but chosen to put aside to save (money flows from households to banks)
∙ |T| net taxes : taxes minus benefits
∙ |M| import expenditure : households buy from local retailers, who then pay the foreign producers for the good

|J| INJECTIONS = I + G + X
∙ |I| investment : amount that producers spend to invest in plants and equipment or building up of stocks
∙ |G| government expenditure: when government spends money on goods and services produced by firms *not inclusive of transfer payments*
∙ |X| export earnings : money from abroad when residents abroad buy our exports

AD = C + I + G + (X-M)
definition - total amount of domestically-produced final goods and services demanded by the economy at every price level at a given time

|C| CONSUMPTION DIE
◼︎ Size of Disposable Income
SDI ↑, higher p.p., C ↑
◼︎ Expectations of Future Prices & Income
future prices expected to ↑, households ↑current consumption (reverse applies)
◼︎ Interest Rates
COB & Savings
IR ↑, rates of returns of savings ↑, hence COB ↑, thus households consume less/save more (C↓)
IR ↓, cheaper to obtain credit, households borrow and spend more, C↑

|I| INVESTMENT BIGCI
◼︎ Interest Rate
↓IR, COB cheaper, I↑
◼︎ Business Confidence
+ve ⇒ firms expect higher rates of returns on investment and ↑in demand, revenue earnings expected to ↑, I↑
(-ve ⇒ reverse)
◼︎ Cost of Capital
capital goods cheaper ⇒ COP ↓, investment projects become more profitable, I↑
◼︎ Innovation & Technology
improvement in IT ⇒ I ↑, existing capital become obsolete and inefficient, newer equipment is more efficient and productive, ↓COP, ↑profits, ↑I
◼︎ Government Policy
↓corporate tax, ↑after-tax profits, ↑return on business investment, ↑I
↑investment grant, ↑profitability, ↑I

|G| GOVERNMENT EXPENDITURE CD
◼︎ Current Expenditure - e.g. general services, defence, justice & police, social services
◼︎ Development Expenditure - e.g. infrastructure developments, school & HDB upgrading
* LRAS curve shifts right → ∵ efficiency & productivity ↑, workers get on time; goods transported more efficiently

|X| EXPORTS REN
◼︎ National Income of Other Countries
when other countries experience economic growth and national income rises, residents in those countries will spend more on imports, export earnings ↑
◼︎ Relative Prices
if relative prices of our exports are lower, people will switch over and buy more of our exports (DD↑)
◼︎ Exchange Rates ***
↓XR, our currency is depreciated, prices of exports relatively cheaper in foreign currency, residents in other countries will buy more of our imports
(↑XR ⇒ reverse; "appreciated")

|M| IMPORTS DE
◼︎ Domestic Income Level
↑domestic income , ↑p.p., demand more for imported goods & services, M↑
◼︎ Exchange Rate ***
↓XR, imports relatively more expensive in domestic currency, discourage people buying imported goods & services, ↓M
(↑XR ⇒ reverse)

✶✶ SGD$1 = MYR$3 ⇒ SGD$2 = USD$3 (DEPRECIATION OF SGD: it costs more to buy other foreign currency) ✶✶

any component of AD ↑, AD shifts right →


SRAS
◼︎ Changes in wages and other factor input prices (COP)
↑COP, SRAS shifts left ←
◼︎ Temporary supply shocks
e.g. war, natural disasters
SRAS shifts left ←

LRAS (productivity)
◼︎ Changes in stock of capital ⇒ quantity & quality of FOP
(note: skilled workforce ↓COP, thus SRAS also shifts right →)
◼︎ Advancement in technology & entrepreneurship
↓costs, ↓productivity, thus LRAS shifts right →
◼︎ Increase in natural resources and labour force
natural resources ↑⇒ ↓COP, expands economy's sustainable rate of output, ∴ both SR and LR AS shifts right →


✩ explaining GPL, employment level, real national income (economic growth)✩
GPL - due to little spare capacity in the economy, FOP ↑, thus GPL↑ from P1 to P2
EMPLOYMENT LEVEL - running down of stocks, firms step up production, hire more resources incl. labour, ↑employment
ECONOMIC GROWTH - as more output produced, NY increases [BY MULTIPLES (!!!); only for AD shifts] from Y1 to Y2


Multiplier Size ⇋ MPS, MPT, MPM
MPS : attitude towards savings (e.g. SG) → these countries will save more rather than spend when their income rises
MPT : tax rates in the country → high tax rates means less for spending (e.g. UK tax rates are very high)
MPM : how open the country is to trade → e.g. SG very dependent on trade, which means when income rises, higher tendency to import, thus multiplier size is smaller