(1) Chapter 7 - How the macroeconomy works Flashcards
Define WEALTH
The value of asset stocks which have a value at a point in time
What is NATIONAL WEALTH
The value in stocks of all goods in an economy at a point in time
Define NATIONAL INCOME
The flow of new output produced by the economy in a particular period
What is NATIONAL OUTPUT
The same as NATIONAL INCOME
What is NATIONAL PRODUCT
The same as NATIONAL INCOME
What is a CLOSED ECONOMY
An economy with no international trade
Define SAVING
Income which is not spent
What is a withdrawal
a leakage of spending power of the circular flow of income
What is an injection
Spending entering the circular flow of income
What is a open economy
an economy open to trade
What are REFLATIONARY POLICIES
Policies that increase aggregate demand to aim for an increase in real output and employment
Define INFLATION
The continuing rise in price level
What is the EQUILIBRIUM NATIONAL INCOME
The level of real output at which aggregate demand is equal to aggregate supply
Define AGGREGATE DEMAND
The total planned spending on real output produced within the economy
Define AGGREGATE SUPPLY
The level of real national output that producers are prepared to supply
What is an ECONOMIC SHOCK
An unexpected event hitting the economy which can effect demand-side or supply-side (sometimes both)
What is the RATE OF INTEREST
The reward for lending savings and the cost of borrowing
Define AVAILABILITY OF CREDIT
Funds available for households and firms to borrow
What is a CREDIT CRUNCH
When there is a lack of funds available in the credit market, difficult for borrowers to obtain financing, and lead to rise in cost for borrowing
What is DISTRIBUTION OF INCOME
The spread of different income among individuals and income groups
Define ACCELERATOR
A change in the level of investment in capital goods because of a change in rate of growth of national income/AD
Define MULTIPLIER
The relationship between a change in AD resulting in a larger change in national income
How do you calculate the multiplier
1/ 1- MPC (Marginal propensity to consume)
Define MPC (Marginal propensity to consume)
The fraction in disposable income that people plan to spend
