Booklet 2 Flashcards
What is it called when an increase in a component of aggregate demand leads to an increase in investment, triggering a further increase in AD?
Accelerator effect
What is the sum of all planned expenditure in an economy (consumption, investment government spending and net exports)?
Aggregate Demand
What was the dominant school of thought in economics from the 18th to late 19th centuries, underpinned by a belief in the working of markers and adjustments in prices to allocate resources?
Classical Economics
What is the term used to describe spending by households, and is also called consumer spending?
Consumption
What is the income after taxes and transfer payments?
Disposable Income
What is the percentage return added as a reward on savings and charged on borrowing?
Interest
What is spending by firms on capital called?
Investment
What is the time period in which all factors of production are variable in quantity?
Long-run
What is the point at which aggregate demand equals aggregate supply with no tendency for the economy to change (in the classical model this can only occur at full employment)?
Macroeconomic Equilibrium
What is the term ascribed to the proportion of an increase in income that is spent?
Marginal propensity to consume
What is the term ascribed to the proportion of an increase in income that is saved?
Marginal propensity to save
What is it called when an increase in a component of aggregate demand leads to a more-than-proportionate increase in real national output?
Multiplier Effect
What is the value of a country’s exports minus the value of its imports?
Net Exports
What is the difference between the current level of output in an economy and it’s long run productive capacity (negative if there is spare capacity, positive if the economy produces beyond capacity in the short run)?
Output Gap
What is the part of the economy that is directly controlled by the government?
Public Sector
