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
What is it called when real G.D.P falls for two successive quarters?
Recession
What is the time period in which at least one factor of production is fixed in quantity?
Short-run
What are the four components of aggregate demand?
Consumer spending/Consumption
Investment
Government Spending
Net Exports
What are the three main areas of consumer spending?
Consumer Durable Goods
Consumer Non-durable Goods
Services
What are the 7 influences on consumer spending?
Incomes
Unemployment
Consumer Confidence
Wealth and the ‘Wealth Effect’
Taxation
Population
Interest Rates/ Availability of Credit
What are the four interest payments affecting consumers?
Savings
Mortgages
Loans
Credit Cards/Credit Purchases
What four factors will influence consumer confidence?
Economic Growth/Recession
Unemployment
Inflation
Large Events/ Feel-good Factor
What does the word marginal mean?
Relating to a change of one unit
What is the formula for the size of the multiplier?
1/1-MPC
What are the 9 determinants of investment in fixed capital?
Business Cycle
Market Growth
Technological Change
Consumer Confidence
Price of Labour
Price of Capital
Taxation
Interest Rates
Business Confidence: ‘Animal Spirits’
