AC 2.1 Flashcards
Define Income
A flow of money going to factors of production
What is wealth?
The current value of a stock of assets owned by someone or society
What are the 3 injections?
- Investment
- Government Expenditure
- Export expenditure
What are the 3 leakages?
- Net saving
- Net taxes
- Import expenditure
Define investment.
The purchase of physical assets.
What is government expenditure?
Government spending on goods and services produced by firms.
What is macroeconomic equilibrium?
AD = AS
State the national income identity
Q = Y =E
State the equation for AD.
C + I + G + (X-M)
Define consumption.
The total spending by households on goods and services in an economy.
List 7 factors influencing consumption by households.
- Income Levels
- Interest Rates
- Consumer Confidence
- Wealth
- Prices of Goods & Services
- Government Policies
- Cultural and Social Factors
What is saving?
An act of forgoing consumption.
What is the mps?
The proportion of disposable income which is saved.
List 5 reasons why individuals save?
- Retirement
- Big ticket items
- Precautionary motives
- Capital gains
- Future generations
What is net investment?
The total amount of investment in an economy.
List 5 determinants influencing investment by firms.
- The Accelerator
- Interest Rates
- Animal Spirits
- Taxes
- Government Regulation
Explain the term demand induced investment.
Investment made by firms in response to an increase in consumer demand for goods and services, aiming to expand production capacity to meet that demand.
Why do firms invest?
- Profits
- Increase capacity to meet demand
- Improve efficiency
4 Exploit economies of scale - Higher wage costs
- Create barriers to entry
How does the economic cycle effect G.
The government may use taxes or cut government spending to combat inflation.
List 3 benefits of investment.
- Shifts AD
- Shifts LRAS
- Increases the productive capacity of the economy shifting LRAS.
How does the economic cycle effect T.
During expansions, higher income leads to increased tax collection while during recessions, lower economic activity reduces tax revenue.
What is net trade?
X - M
State 5 factors influencing the trade balance.
- Real Income
- Exchange Rates
- State Of The World Economy
- Degree Of Protectionism
- Non-Price Factors
Define AS.
The total volume of g/s domestic firms are willing & able to supply at a given general price level.
What is full-employment
All available labor resources are being utilized efficiently, with only frictional and structural unemployment.
What shifts SRAS
Changes in production costs.
