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Economics > Equilibrium in the Economy > Flashcards

Equilibrium in the Economy Flashcards

1
Q

What is macroeconomics?

A

About the economy as a whole

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2
Q

What are the characteristics of macroeconomics?

A

The total level of spending, production, national output and the general price level of prices

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3
Q

What are the major issues in macroeconomics?

A

Economic growth, unemployment, inflation, balance of payments and exchange rates, sector accounts and financial stability

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4
Q

What are the governments macroeconomic objectives?

A

High and stable economic growth, low inflation, low levels of unemployment and a favorable balance of trade

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5
Q

What are the policy instruments?

A

Fiscal and monetary policy

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6
Q

What is fiscal policy?

A

Involves changing the level of government spending and taxation rates to influence the economy

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7
Q

What is monetary policy?

A

Involves controlling the money supply and changing the interest rates to influence the economy

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8
Q

What are examples of government policy changes?

A

Cut income tax, increase government spending, make borrowing easier and cheaper for people and firms and reduce unemployment benefits

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9
Q

When is there an equilibrium in macroeconomics?

A

When aggregate demand = aggregate supply

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10
Q

What are the economic agents?

A

Households and firms

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11
Q

What is an injection (J)?

A

Money that flows to firms without being recycled through households

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12
Q

What are the injections in the circular flow of income?

A

Investment (I), government spending (G) and exports (X)

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13
Q

What is the formula for injection?

A

J = I + G + X

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14
Q

What are withdrawals (W)?

A

Money not recycled from households to firms

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15
Q

What are the withdrawals in the circular flow of income?

A

Savings (S), tax (T) and imports (M)

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16
Q

What is the formula for withdrawals?

A

W = S + T + M

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17
Q

What are withdrawals dependent on?

A

National income

18
Q

Are withdrawals upward or downward sloping?

A

Upward sloping, if income is higher, people save more, import more and will have to pay more taxes

19
Q

Do withdrawals usually start negative or positive?

A

Negative, people don’t have income but still have to buy food, so they use their savings

20
Q

What happens if injections exceed withdrawals?

A

National income will rise

21
Q

What happens if income falls?

A

We will have a lower national income

22
Q

What happens if withdrawals exceed injections?

A

National income will fall

23
Q

What happens if you’re on the left hand side of your equilibrium?

A

Injections are higher and income increases

24
Q

What happens if you’re on the right hand side of your equilibrium?

A

Withdrawals are higher and national income will fall

25
Q

What happens with withdrawals equal injections?

A

This is where we have equilibrium national income

26
Q

What does an upward shift of injections lead to?

A

Higher national income

27
Q

What does a downward shift of injections lead to?

A

Lower national income

28
Q

What does an upward shift of withdrawals lead to?

A

Lower national income

29
Q

What does a downward shift of withdrawals lead to?

A

Higher national income

30
Q

When do we get an equilibrium in the economy?

A

When planned withdrawals = planned injections, AD = AS and when AD intersects with a 45 degree line

31
Q

What happens if output is below Y’ on the graph?

A

AD is higher than national output (stocks fall and firms are going to produce more)

32
Q

What happens if output is above Y’ on the graph?

A

AD is lower than national output (stocks increase and firms are going to produce less)

33
Q

When does full employment occur?

A

When all resources in an economy are fully used

34
Q

What is the deflationary output gap?

A

When AD is below full employment level of output

35
Q

What is the inflationary output gap?

A

When AD is above full employment level of output

36
Q

What is reflationary policy?

A

It occurs when the government increases the level of AD

37
Q

What are the effects of reflationary policy?

A

Slope of AD changes and upward shift of AD

38
Q

What is the multiplier?

A

It explains how an initial increase in planned injections into the economy increases national income by more than the initial increase

39
Q

What does the size of the multiplier depend on?

A

The marginal propensity to consume domestically

40
Q

What is marginal propensity?

A

The amount of extra income that is spent on domestically produced products

Economics (24 decks)

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