How the macroeconomy works

Question 1

national output

Answer 1

producing goods and services

Question 2

national income

Answer 2

money paid to households for factors of production like land labour and capital

Question 3

national expenditure

Answer 3

household spending the money they get from national income on goods and services

Question 4

Circular flow of income formula

Answer 4

national output=national income=national expenditure

Question 5

Injections

Answer 5

injections into the circular flow in the form of exports, investment, government spending

Question 6

Withdrawals

Answer 6

come in the form of imports, savings and taxes

Question 7

differences in injections and withdrawals

Answer 7

if injections and withdrawals are equal then its equilibrium

if injections are greater than withdrawals this means expenditure is greater output so firms will increase output

if withdrawals are greater than injections this means ouput is greater than expenditure so firms will reduce output

Question 8

AD demand curve

Answer 8

x axis national output

y axis price level

AD curve slopes downwards the lower the price level the more output demanded

changes in price level from P to p1 causes total AD to fall from Y to Y1

Question 9

AD curve shifting to the right

Answer 9

due to a rise in consumption, investment and government spending it can cause a shift to the right an outward shift causes more ouput to be produced

Question 10

AD curve shifting to the left

Answer 10

AD will shift to the left due to a fall in consumption, investment and Government spending

an inward shift means less output is produced

Question 11

Agreggate supply

Answer 11

the total output produced at a given price level

Question 12

SRAS

Answer 12

short run aggregate supply, increase in price level causes an increase in output when its inelastic its steep upwards

Question 13

LRAS

Answer 13

LRAS curve is vertical so an increase in price level wont cause an increase output due to being at full capcity

Question 14

causes of shifts in SRAS

Answer 14

if theres a change in costs of production as if costs reduce more ouput is produced shifting to the right

it could shift to the left due increase in wage rates or due to supply side shocks like war

Question 15

causes of shifts in LRAS

Answer 15

Changes in factors of production will causes LRAS to shift

improvements in factors of production shift LRAS to the right like eduction, technology and more

a detioriation in the factors of production causes LRAS shifting to the left

Question 16

how can banks shift LRAS

Answer 16

firms can borrow money to invest in new machinery which increases productivity potential shifting LRAS and SRAS to the right

Question 17

Keynesian LRAS

Answer 17

at low levels of output AS is horizontal so output can increase without a rise in price

when the curve slopes upwards its experiencing problems causing an increase in costs

Question 19

AD equation

Answer 19

AD=consumption + investment+ Government spending + exports - imports

Question 20

Consumption

Answer 20

total amount spent by households on goods and services

Question 21

factors affecting consumption

Answer 21

income- as income rises consumption rises

interest rates- high interest rates lower consumption

consumer confidence- if consumer feels more confident they spend more

Question 22

factors affecting investment

Answer 22

Government incentives- reduction in tax and subsidies affect investment

technological advances- when theres technological advances made investment rises

business confidence- more confident a buisness is to make profits the more likely it is to invest

Question 23

factors affecting exports

Answer 23

exchange rate - if the currency increases imports become cheaper and exports become more expensive

changes in the state of the economy- the higher the income in the economy the more they will import

degree of protectionism- tariffs and qoutas can increase exports and decrease imports

non price factors- quality of goods improves exports

Question 24

marginal propensity to consume

Answer 24

MPC- the proportion of extra income spent on Goods and services

Question 25

Marginal propensity to consume equation

Answer 25

change in consumption/ change in income

Question 26

accelerator effect

Answer 26

when firms make accelerated investment in capital goods to increase output and create profit