4.2.2 How The Macroeconomy Works Flashcards

1
Q

What is an example of a withdrawal of income from the circular flow?

A

Saving
Taxes
Imports

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2
Q

What is an example of an injection of income to the circular flow?

A

Government spending on merit goods
Welfare payments
Exports

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3
Q

What is an injection into the circular flow of income?

A

Money which enters the economy

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4
Q

What is a withdrawal from the circular flow of income?

A

Money which leaves the economy

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5
Q

What is aggregate demand?

A

The total demand in the economy

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6
Q

When does AD increase?

A

When:
- Consumers and firms have higher confidence levels
- If the monetary policy committee lowers interest rates
- Lower taxes causing higher disposable income
- house prices increasing and making people feel wealthier
- credit more available
- Depreciation in a currency

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7
Q

What does aggregate supply show?

A

The quantity of real GDP which is supplied at different price levels in the economy

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8
Q

When does the SRAS curve shift?

A
  • Cost of employment might change
  • Cost of other inputs might change
  • Government regulation or intervention
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9
Q

What does the LRAS curve show?

A

The potential supply of an economy in the long run

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10
Q

How is economic growth shown on the LRAS curve?

A
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11
Q

What does it mean if price is above equilibrium?

A

There will be excess supply

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12
Q

What does it mean if price is below equilibrium?

A

There will be excess demand

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13
Q

What is the equation for AD?

A

C + I + G + (X-M)

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14
Q

What is C?

A

consumer spending

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15
Q

What influences consumer spending?

A

Interest rates
Consumer confidence

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16
Q

What is I?

A

Capital investment

17
Q

What influences investment?

A

rate of Economic growth
BUsiness confidence
Demand for exports
Interest rates
Government and regulations
Access to credit

18
Q

What is G?

A

Government spending

19
Q

What is the accelerator effect?

A

Investment levels will increase if the economy is growing

20
Q

What happens during recessions?

A

Real output of the economy falls
Economic growth is negative

21
Q

What is the economic boom?

A

When economic growth is fast
And this could be inflationary or unsustainable

22
Q

What does expansionary fiscal policy do?

A

Increases spending
To boost economic growth

23
Q

What is exports minus imports?

A

The value of the current account on the balance of payments

24
Q

What factors influence the level of economic activity?

A

Employment
Confidence
events
fiscal policy

25
Q

What does the multiplier effect refer to?

A

A rise in aggregate demand leads to a rise in income

26
Q

Formula for the multiplier

A

1 / (1-mpc)

27
Q

What is Marginal Propensity to Consume?

A

How much a consumer changes their spending following a change in income

28
Q

What factors influence LRAS?

A
  • Technological advances
  • Changes in relative productivity
  • Changes in education and skills
  • Changes in government regulation
  • Migration