Definitions

Question 1

Aggregate demand

Answer 1

Total planned spending on the output produced in an economy

Question 2

What are the 4 components of aggregate demand ?

Answer 2

Consumption

Investment

Govement spending

Net exports

Question 3

Consumption

Answer 3

Spending by households on consumer goods

Question 4

Investment

Answer 4

Spending by firms on capital

Question 5

Govement spending

Answer 5

Spending by the government on goods and services

Question 6

Net exports

Answer 6

Exports -imports

Question 7

Inflation

Answer 7

Sustained rise in the general price level

Question 8

Accelerator effect

Answer 8

Increase in a component of AD leads to an increase in investment , triggering further increase in AD

Question 9

Public sector

Answer 9

Part of economy directly controlled by the government

Question 10

Disposable income

Answer 10

Income after taxes and transfer payments

Question 11

Consumer confidence

Answer 11

Households willingness to spend

Question 12

Multiplier effect

Answer 12

Increase in a components of AD leads to more than proportionate increase in real expenditure

Question 13

Recesession

Answer 13

Fall in real GDP for two successive quarters

Question 14

Marginal propensity to consume

Answer 14

Proportion of an increase in income that spent

Question 15

Marginal propensity to save

Answer 15

Proportion of an increase in income that’s saved

Question 16

Short run

Answer 16

Time period in which at least one factor of production is at fixed quantity

Question 17

Long run

Answer 17

Time period in which all factors of production are variable quantity