(1) Chapter 7 - How the macroeconomy works

Question 1

Define WEALTH

Answer 1

The value of asset stocks which have a value at a point in time

Question 2

What is NATIONAL WEALTH

Answer 2

The value in stocks of all goods in an economy at a point in time

Question 3

Define NATIONAL INCOME

Answer 3

The flow of new output produced by the economy in a particular period

Question 4

What is NATIONAL OUTPUT

Answer 4

The same as NATIONAL INCOME

Question 5

What is NATIONAL PRODUCT

Answer 5

The same as NATIONAL INCOME

Question 6

What is a CLOSED ECONOMY

Answer 6

An economy with no international trade

Question 7

Define SAVING

Answer 7

Income which is not spent

Question 8

What is a withdrawal

Answer 8

a leakage of spending power of the circular flow of income

Question 9

What is an injection

Answer 9

Spending entering the circular flow of income

Question 10

What is a open economy

Answer 10

an economy open to trade

Question 11

What are REFLATIONARY POLICIES

Answer 11

Policies that increase aggregate demand to aim for an increase in real output and employment

Question 12

Define INFLATION

Answer 12

The continuing rise in price level

Question 13

What is the EQUILIBRIUM NATIONAL INCOME

Answer 13

The level of real output at which aggregate demand is equal to aggregate supply

Question 14

Define AGGREGATE DEMAND

Answer 14

The total planned spending on real output produced within the economy

Question 15

Define AGGREGATE SUPPLY

Answer 15

The level of real national output that producers are prepared to supply

Question 16

What is an ECONOMIC SHOCK

Answer 16

An unexpected event hitting the economy which can effect demand-side or supply-side (sometimes both)

Question 17

What is the RATE OF INTEREST

Answer 17

The reward for lending savings and the cost of borrowing

Question 18

Define AVAILABILITY OF CREDIT

Answer 18

Funds available for households and firms to borrow

Question 19

What is a CREDIT CRUNCH

Answer 19

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

Question 20

What is DISTRIBUTION OF INCOME

Answer 20

The spread of different income among individuals and income groups

Question 21

Define ACCELERATOR

Answer 21

A change in the level of investment in capital goods because of a change in rate of growth of national income/AD

Question 22

Define MULTIPLIER

Answer 22

The relationship between a change in AD resulting in a larger change in national income

Question 23

How do you calculate the multiplier

Answer 23

1/ 1- MPC (Marginal propensity to consume)

Question 24

Define MPC (Marginal propensity to consume)

Answer 24

The fraction in disposable income that people plan to spend

Question 25

Define SRAS (Short run aggregate supply)

Answer 25

When the level of capital is fixed, but other existing factors can be changed

Question 26

Define LRAS (Long run aggregate supply)

Answer 26

When the economy is producing at its productivity potential. It can shift outwards if productivity rises

Question 27

Define DEFLATION

Answer 27

Continuing fall in price level, but still above 0%

Question 28

What factors can cause a OUTWARD shift in SRAS

Answer 28

• Cheaper input costs
• Cheaper labour costs
• Cheaper taxes
• Subsidies granted
• Technical progress made (Advancements in tech)