10 - How the Macroeconomy Works Definitions

Question 1

Circular Flow

Answer 1

All major exchanges in the economy represented as flows.

Question 2

Injections

Answer 2

Variables which add to the circular flow (I, G, X).

Question 3

Withdrawls

Answer 3

Variables which leak out of the circular flow. (S, T, M).

Question 4

Economic Agent

Answer 4

An entity which engages in economic activity.

Question 5

Households

Answer 5

Either one person living alone, or a group of people living together, and sharing things.

Question 6

Firms

Answer 6

Businesses or organisations who produce or sell goods and services with the aim of making profit.

Question 7

Money Flows

Answer 7

The flow of money between economic agents. e.g. Interest Payments.

Question 8

Real Flows

Answer 8

The flow of goods and services between economic agents.

Question 9

Aggregate Demand

Answer 9

The total demand for goods and services within a particular market.

Question 10

Aggregate Supply

Answer 10

The total supply of goods and services available to a particular market from producers.

Question 11

Consumption

Answer 11

The use of goods and services by a household.

Question 12

Investment

Answer 12

The addition of capital or stock to the economy, used for generating future income.

Question 13

Exports

Answer 13

Products made in this country, and sold to other countries.

Question 14

Imports

Answer 14

Goods or services produced in another country, which this country buys.

Question 15

Trade Surplus

Answer 15

When a country exports more than it imports, meaning trade is profitable.

Question 16

Trade Deficit

Answer 16

When a country imports more than it exports, meaning trade isn’t profitable.

Question 17

Budget Surplus

Answer 17

More revenue is brought in through taxation than is spent.

Question 18

Budget Deficit

Answer 18

More is spent than brought in through taxation.

Question 19

Savings Ratio

Answer 19

The ratio of personal savings to disposable income.

Question 20

Multiplier Effect

Answer 20

The effect of demand on GNI and GDP.

Question 21

Marginal Propensity to Consume

Answer 21

A measure of the proportion of an increase in income that a household is likely to spend on consumption.

Question 22

Marginal Propensity to Save

Answer 22

Change in household saving, as a result of a change of a change in disposable income.

Question 23

Accelerator Effect

Answer 23

An increase in GDP results in a rise in capital investment.