ADAS

Question 1

components of Aggregate demand

Answer 1

• consumption
  -investment
  -government spending
  -export-import
  AD=GDP

Question 2

changes in consumption

Answer 2

MPC, MPS, MPM, MRT

Question 3

components of consumption

Answer 3

• wealth
• expectations
• real interest rates
• household debt
• taxation

Question 4

MPC

Answer 4

The proportion of additional income that an individual consumes.
MPC=change C/change Y

Question 5

MPS

Answer 5

The proportion of each additional dollar of household income that is used for saving.
MPS=change Save/change Y

Question 6

MPM

Answer 6

The change in imports induced by a change in income.

MPM= change M(import)/change Y

Question 7

MRT

Answer 7

Refers to outflow of circular model, occurs when income is spent taxes, savings and imports.
MRT=change Taxes/change Y

Question 8

MPC

Answer 8

The proportion of additional income that an individual consumes.
MPC=change C/change Y

Question 9

investment component

Answer 9

• business confidence
• technology
• expectation
• business taxes
• degree of excess capacity

Question 10

government spending component

Answer 10

fiscal policy

Question 11

Net exports components

Answer 11

• exchange rate
• protectionism
• taxes

Question 12

multiplier effect

Answer 12

The increase in final income arising from any new injection of spending.

Question 13

tax multiplier

Answer 13

Represents the multiple by which GDP increases in response to a decrease, or vice-versa, in taxes charged by governments.
-MPC/MRL=-MPC/1-MPC

Question 14

Aggregate supply definition

Answer 14

total quantity of goods and services produced in a nation at range Price level during a period of time

Question 15

determinants of Aggregate supply

Answer 15

• wages rates
• gvt regulation
• cost of resources
• exchange rate
• business taxes
• energy cost

Question 16

wealth

Answer 16

total assets of an individual, firm or government minus its total liabilities.

Question 17

spending multiplier

Answer 17

Represents the multiple by which GDP increases or decreases in response to an increase and decrease in government expenditures and investment.
(k)=1/(1-MPC)

Question 18

classical view on AS

Answer 18

If left unregulated, a weak or booming economy would “self-correct” and return to a ‘normal’ state of full-employment level of output due to the flexibility of wages and prices.

Question 19

Keynesian view on AS

Answer 19

Opposite to Classical view on AS. The economy will not “self-correct” due to “sticky wages and prices”, meaning the government needs to have an active role in maintaining full-employment output.

Question 20

Demand deficient recession

Answer 20

Refers to changes in the economic cycle, when the economy is blooming and unemployment rate falls

Question 21

recessionary gap

Answer 21

A recessionary gap is a term routed in macroeconomic theory that summarizes the situation where an economy is operating at below its full-employment equilibrium. Under this condition, the level of real gross domestic product (GDP) is currently lower then it is at full-employment, which puts downward pressure on prices in the long run.

Question 22

demand pull inflation

Answer 22

situation of AD increasing beyond the full employment level-price increase due to increase in AD

Question 23

inflationary gap

Answer 23

macroeconomic condition that describes the distance between the current level of real gross domestic product (GDP) and full employment (long run equilibrium) real GDP

Question 24

stagflation

Answer 24

persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

Question 25

short run economic growth

Answer 25

annual percentage of change in the real national output

Question 26

long run economic growth

Answer 26

growth of productivity, demographic changes, and labor force participation.

Question 27

MRL

Answer 27

Refers to outflow of circular model, occurs when income is spent taxes, savings and imports.

MPS+MPM+MRT