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Economics - Chapter 8 > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

What are the 3 measurements of national income?

A

Income method
Output method
Expenditure method

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2
Q

National income equals what?

A

National output and national expenditure

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3
Q

What is real national income?

A

National income adjusted to take into account inflation

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4
Q

What is nominal income?

A

National income without adjustment for inflation

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5
Q

What are the 3 injections into the flow of income?

A

Gov spending (G)
Investments (I)
Exports (X)

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6
Q

What is national output?

A

All the goods and services produced by a country

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7
Q

What do households provide?

A

Factors of production to produce goods = national income.

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8
Q

Households spend income on goods and services to make what?

A

National expenditure

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9
Q

What are the 3 withdrawals from the flow of income?

A

Tax (T)
Savings (S)
Imports (M)

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10
Q

What is macroeconomic equilibrium?

A

where total injections = total withdrawals

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11
Q

If injections > withdrawals, what happens?

A

National income increases

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12
Q

If injections < withdrawals, what happens?

A

National income decreases

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13
Q

What is the circular flow of income?

A

A model of the economy showing flows of income and expenditure

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14
Q

What is an injection?

A

Money entering the circular flow from govs, businesses, or the foreign sector

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15
Q

What is a withdrawal?

A

Money leaving the circular flow, either for savings, taxation or spending on imports

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16
Q

What is aggregate demand (AD)?

A

The total planned expenditure at any given price level

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17
Q

What is the formula for AD?

A

(C + G + I + X - M)

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18
Q

What is consumption?

A

Spending by households on consumer goods and services

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19
Q

What is the multiplier effect?

A

How a change in expenditure results in a greater overall change in national income

20
Q

When does the multiplier effect occur?

A

If the actual change in national income is greater than the initial injection. The change in AD.

21
Q

Bigger the withdrawal, what would the effect be on money leakage?

A

Quicker the money leakage

22
Q

What are the determinants of consumption?

A

Income
Interest rates
Consumer confidence
Taxation (on incomes)
Wealth effect
Unemployment

23
Q

What is the wealth effect?

A

A rise in consumption due to the individual feeling wealthier when their assets owned increase in value

24
Q

What are the determinants of saving?

A

Income
Tax (on interest received from saving)
Interest rates
Consumer Confidence
Gov regulation (i.e. contractual savings - i.e. pension contributions)

25
Q

What are the determinants of investment?

A

Interest rates
Business confidence
Tax (on profits)
Advances in tech

26
Q

What is investment?

A

Spending by business on additions to the capital stock of the economy

27
Q

What is capital stock?

A

The value of all productive investment goods at a point in time

28
Q

What is investment affected by?

A

Changes in national income.

29
Q

What is the accelerator process?

A

Where changes in national income will lead to greater changes in the level of investment. Increases in national income generate more investment as businesses expand their productive capacity

30
Q

What are the determinants of gov expenditure and net exports?

A

Gov spending affects AD and the ability to achieve economic objectives, so:
Increases in gov spending boost economic growth and reduce unemployment
Decreases in gov spending reduces inflation

31
Q

What is Aggregate supply (AS)?

A

The total level of output of all businesses at any given price level

32
Q

What is short run aggregate supply (SRAS)?

A

The level of output supplied by businesses in the short run

33
Q

What is the long-run aggregate supply (LRAS)?

A

The max potential level of output for an economy in the long run

34
Q

What are the determinants of SRAS?

A

Wage rates
Other input costs
Indirect taxes
Exchange rate
Productivity

35
Q

What causes shifts in the SRAS curve?

A

Changes in production costs;
Increases in production costs reduce the profitability of production = SRAS curve shifts left
Decreases in production costs increase the profitability of production = SRAS curve shifts right

36
Q

What causes movements along the SRAS curve?

A

When there is a shift in AD

37
Q

What are the determinants of LRAS?

A

Quantity and quality of factors of production
Tech
Productivity
Factor mobility
Enterprise
Economic incentives and attitudes
Supply-side policies

38
Q

What is the institutional structure of the economy?

A

LRAS is affected by the institutional structure of the economy. i.e. the legal and financial systems. Ensuring this structure works efficiently and fairly helps to increase LRAS.
After the 2008 financial crisis, the UK gov intervened to help banks continue lending money to businesses

39
Q

What is the Keynesian AS curve?

A

An alternative AS curve to the SRAS and LRAS curves.
No distinction is made between short run and long run AS curves.
At low levels, real GDP can be increased with no upward pressure on prices.
As the economy gets close to capacity level, prices begin rising.
The AS curve is perfectly inelastic at the full capacity point, and increases in AD = higher price levels

40
Q

What is short-run macroeconomic equilibrium?

A

Measured by the price level and real GDP level. It’s where the SRAS and AD meet.

41
Q

What is long-run macroeconomic equilibrium?

A

Occurs where LRAS and AD intersect. Price level varies but the level of real GDP remains same.
The long run equilibrium level of real GDP is always at the full capacity output level - full employment output.

42
Q

What is a demand-side shock?

A

An unexpected, sudden or large change to AD

43
Q

What is a supply-side shock?

A

An unexpected, sudden or large change to AS

44
Q

What are the examples of a demand-side shocks?

A

2008 financial crisis
A large fall in the exchange rate
Unexpectedly large change to interest rates

45
Q

What are the examples of supply-side shocks?

A

Massive oil price rises of the 1970s
Sig crop failure
Sig change to price of an important commodity

46
Q

Explain the two indicators of economic performance?

A

Lead indicators i.e. surveys of consumer and business confidence etc = provide info about the future state of the economy
Lag indicators i.e. tables that show how real national income has changed over the years, provides info about past economic growth.

47
Q

What is taxation?

A

Compulsory levies made by gov, which people have to pay

Economics - Chapter 8 (10 decks)

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