Chapter 7 - How the macroeconomy works Flashcards
NATIONAL CAPITAL STOCK
the stock of capital goods at a point in time
WEALTH
the STOCK of assets which have value at a point in time
NATIONAL WEALTH
the stock of all goods that exist at a point in time in an economy
NATIONAL INCOME/OUTPUT/PRODUCT
the FLOW of new output produced by an economy in a particular period
CONSUMPTION
total planned spending by households on consumer goods and services produced within an economy
CLOSED ECONOMY
an economy with no international trade
SAVING
income which is not spent
WITHDRAWAL
spending leaving the circular flow of income due to savings, taxes or imports
INVESTMENT
total planned spending by firms on capital goods within the economy
INJECTION
spending entering the circular flow of income as a result of investment, government spending and exports
OPEN ECONOMY
an economy open to international trade
REFLATIONARY POLICIES
policies that increase aggregate demand with the intention of increasing real output and employment
INFLATION
a continuing rise in the price level
EQUILIBRIUM NATIONAL INCOME/ MACROECONOMIC EQUILIBRIUM
the level of real output at which AD=AS or when leakages equal withdrawals
AGGREGATE DEMAND
total planned spending on real output produced within the economy
AGGREGATE SUPPLY
the level at national output that producers are willing and able to supply at different average price levels
ECONOMIC SHOCK
an unexpected event hitting an economy. can be demand/supply side and favourable/unfavourable
CONSUMPTION
total planned spending on goods and services by households within an economy
RATE OF INTEREST
the reward for saving and the cost of borrowing
LIFE-CYCLE THEORY OF CONSUMPTION
consumption and saving in terms of how people expect their incomes to change in their life cycles
AVAILABILITY OF CREDIT
funds available for households and firms to borrow
CREDIT CRUNCH
lack of funds available in the credit market, leading to a rise in the cost of borrowing
DISTRIBUTION OF INCOME
the spread of different incomes among individuals and groups within an economy
ACCELERATOR
a change in the level of investment due to a change in the rate of growth of national income or AD
MUTLITPLIER
change in AD has a larger change in national income
MARGINAL PROPENSITY TO CONSUME
a fraction of an increase in disposable income you spend on domestically produced goods
SHORT-RUN AGGREGATE SUPPLY (SRAS)
AS when capital is fixed, can only change through the use of unemployed resources
LONG-RUN AGGREGATE SUPPLY
AS curve when an economy is producing at its productive potential, an increase shifts the curve right
DEFLATION
a continuing fall in the price level
TECHNICAL PROGRESS
new and better way of doing things
