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Economics > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

Difference between level and rate of change

A

Level- current

Rate of change- Change per year

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2
Q

The three ways of measuring flow of new output in an economy

A

Income approach: sums the factor income recieved (national income)

Output approach: Summing totals of actual goods and services produced by an economy

Expenditure approach: How factor incomes such as wage and profits are spent on goods and services (C+I+G(X-M))

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3
Q

How is GDP measured

A

Output approach , flow of new output

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4
Q

Draw the circular flow of income , open economy

A

…

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5
Q

Define withdrawal and injection

A

Withdrawal:

  • Savings
  • Taxation
  • Imports

Injection:

  • Gov spending
  • Investment
  • Exports
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6
Q

What is meant by equilibrium of national income

A

Where injections equal leakages

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7
Q

Define full employment income

A

Level of income when the economy is producing on its PPF

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8
Q

When will output and income rise

A

When withdrawal is less than injection

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9
Q

Define AD

A

Total planned spending on real output in the economy

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10
Q

Define reflationary policies

A

Policies to increase AD and increase real output and employment

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11
Q

Define AS

A

Level of real national output that producers are prepared to supply

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12
Q

What is the equation of AD

A 
C+I+G(X-M) 
Consumption 
Investment 
Gov spending 
X exports 
M imports
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13
Q

Draw aggregate demand

A

…

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14
Q

Draw aggregate supply

A

…

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15
Q

Why is AS upwards sloping

A

Firms aim to profit maximise

Cost of producing extra units of output increases firms produce more output

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16
Q

What happens to national income when AD and AS shift

A

The level changes,
More AD means more national income
Less AD means less national income

17
Q

What does LRAS show

A

Real output supplied when an economy is on its PPF, all factors of production are employed

18
Q

Draw LRAS

A

…

19
Q

How does LRAS move

A

When PPF moves outwards

20
Q

When is there equilibrium in national income

A

Withdrawals=injections

AS=AD

21
Q

Define economic shock

A

When an unexpected event hits the economy (supply or demand side)

22
Q

Determinants of consumption (part of AD)

A
  • Interest rates (saving or consuming)
  • Level of income
  • Expected future income (planning to save or spend)
  • Wealth- stock of it influences consumption
  • Consumer confidence
  • Availability of credit (how easy it is to borrow money)
  • Distribution of income (rich vs poor)
  • Expectancy of future inflation (fear of rising inflation increases saving)
23
Q

Determinants of saving

A

Decision by people to postpone consumption

24
Q

Difference between saving and investment

A

Saving: income not spent on consumption

Investment: Physical (capital) and financial

25
Q

Two parts of country’s gross investments

A
  • Replacing capital

- Buying new capital

26
Q

Factors that influence investment

A
  • Price of labour vs capital

- Technical progress

27
Q

What is the accelerator process

A

Change in the level of investment in new capital goods induced by change in national income or output

28
Q

What is the national income multiplies

A

Measures the relationship between an initial change in a component of AD and how there is a larger change in level of national income

29
Q

How is multiplier measured

A

Change in national income/initial change in AD

30
Q

Draw the national income multiplier

A

…

31
Q

Define marginal propensity to save and consume

A

Up to 1

Fraction of any increase in income of which people plan to save or spend

32
Q

Why might SRAS move rightward

A
  • Fall in cost of production
  • Fall in unit labour cost
  • Reduction in indirect taxes
  • Subsidies
  • Technical progress
33
Q

Why might LRAS shift

A
  • State of technical progress
  • Mobility of labour
  • People’s attitude less
  • Quantities of factors
34
Q

Explain the Keynesian LRAS curve

A

Low levels of output and employment there is still spare capacity in the economy so firms can still increase output without increasing cost per unit

35
Q

Draw Keynesian LRAS

A

…

Economics (15 decks)

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