2.2 How the macro economy works

Question 1

real national income

Answer 1

national income adjusted for inflation

Question 2

circular flow of income

Answer 2

model showing flows of income and expenditure

Question 3

injection

Answer 3

money entering circular flow - investment, gov spending and exports

Question 4

withdrawal

Answer 4

money leaving circular flow - savings, tax, imports

Question 5

aggregate demand AS

Answer 5

total planned expenditure - C+I+G+(X-M)

Question 6

consumption

Answer 6

spending by household on goods and services

Question 7

wealth effect

Answer 7

rise in consumption due to individuals feeling wealthier when asset value increases

Question 8

investment

Answer 8

spending by businesses on capital stock

Question 9

capital stock

Answer 9

value of all productive investment goods

Question 10

multiplier process

Answer 10

change in expenditure results in greater change in national income

Question 11

aggregate supply AS

Answer 11

total level output of businesses

Question 12

short run aggregate supply SRAS

Answer 12

the of output in short run

Question 13

long run aggregate supply LRAS

Answer 13

maximum potential level of output in the long run

Question 14

demand-side shock

Answer 14

unexpected large change in AD

Question 15

supply-side shock

Answer 15

unexpected large change is AS