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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Real disposable income  


When real disposable income increases it means that after tax income has increased in real terms (i.e. adjusting for the effects of inflation) providing the household sector with increased spending power.  This is likely to result in an increase in consumption expenditure, a rise in AD and a corresponding boost to real GDP and economic growth.  The rise in real GDP is likely to exert upward pressure on inflation and make low inflation more difficult to achieve (the extent to which this occurs depends on the level of productive capacity in the economy).  With higher AD and real GDP, it is likely to contribute to a higher demand for labour, growing employment and a lower unemployment (or underemployment) rate - assisting with the full employment goal.  With more employment and lower unemployment, it should assist with the achievement of equity in the distribution of income as there is a reduced reliance on welfare and more people are in receipt of market or private incomes as opposed to transfer income.  In terms of the effect on external stability higher levels for disposable income are also likely to increase the demand for imports and have a negative effect on the balance of trade and the CAD.  Other things being equal, this should result in an increase in net foreign liabilities (either NFD or NFE).


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