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The International Economy > How the Macroeconomy works > Flashcards

How the Macroeconomy works Flashcards

1
Q

what is national income

A

total value of the new ouput of an economy over a period of time
produced by physical and human capital

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2
Q

what is income

A

a flow in the economy eg wages

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3
Q

what is wealth

A

stock of assets

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4
Q

an example of how we can use Real national income as an indicator of economic performance

A

real income rising = improvement of economic performance

real income falling - standard of living is falling

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5
Q

the circular flow of income

A

used to illustrate flow of money resources and goods in an economy

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6
Q

what are injections

A

new income in the economy
add money to circular flow of income
eg G, I, X

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7
Q

what are withdrawals

A

leakages of money from the economy
remove money from circular flow of income eg, S,T,M

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8
Q

what are the determinants of savings

A

factors that influence an individual decision to save than consume immediately

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9
Q

what are savings

A

portion of income that is not spent

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10
Q

what are investments

A

expenditure by firms on capital goods

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11
Q

what is the equilibrium national income level

A

where withdrawals are equal to injections
or when AD=AS

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12
Q

What is full employment

A

the level of income at which an economy is operating at full capacity

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13
Q

what is aggregate demand

A

total demand for goods in the economy at a given price level

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14
Q

formula forAD

A

C+I+G+(X-M)

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15
Q

factors that shift the AD curve

A

Consumption
Gov spending
Net exports
Invest,ent

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16
Q

factors that affect consumption

A

changes in wealth
changes in interest rates
changes in consumer confidence nges in consumer

17
Q

factors that affectexports

A

changes in income form abroad
changes in level of inflation
changes in exchange rates

18
Q

factors that affect imports

A

changes in exchange rates
changes in domestic income
changes in lvl of inflation

19
Q

factors that affect investment

A

changes in business confidence
changes in gov intervention
changes in interest rates

20
Q

factors that affect gov spending

A

capital
trade cycle
political decisions

21
Q

what is aggregate supply

A

AS is the total supply of goods/services produced within an economy at a specific price level at a given time

22
Q

factors that affect the SRAS

A

Changes in the cost of raw materials and energy
changes in exchange rates
changes in tax rates

23
Q

what is long run aggregate supply

A

LRAS represents the potential capacity of an economic factor of production

can show economic growth when a rightward shift occurs

24
Q

factors that affect the LRAS

A

technological advances
changes in relative productivity
changes in education and skills
change in gov regulations
migration
competition

25
Q

What is the relationship between short-run and long-run aggregate supply?

A

SRAS: Influenced by changes in costs of production or productivity.
Refers to the time period where at least one factor of production is fixed.

LRAS; Influenced by changes in the productive capacity, requires changes in quantity and quality of goods shifts the PPF

Long-term economic growth depends on increasing the productive capacity of the economy.

26
Q

what is an economic shock

A

an unpredictable event that has macroeconomic consequences

has negative or positive impacts n economic growth, inflation rate, unemployement lvls

27
Q

what is a demand side shock

A

sudden changes in levels of private spending seen as shifts in consumer spending or business investment

28
Q

what is a supply side shock

A

production becomes more difficult

29
Q

examples of macroeconmic shock

A

The financial crisis- banking instability, reduced borrowing, fall in AD increased unemployment

pandemic- reduced consumer spending, price fluctuations,

30
Q

what is the multiplier

A

injection that leads to greater impact on the economy than value of initial injection

31
Q

what can influence the size of the multiplier

A

Size of withdrawals eg higher the withdrawalW the smaller the MPC

32
Q

What is the MPC

A

proportion of additional income that is spent on consumption

33
Q

how to calculate MPC

A

Consumption/Income

34
Q

formula for the multiplier

A

1/1-MPC

35
Q

Factors that can impact income and in turn the multiplier

A

interest rates
consumer confidence
exchange rates
tax rates

36
Q

what is the accelerator process

A

the relationship between changes in national income and resulting changes in investment.
If goods and services are increasing firms will invest in capital goods to expand capacity and vice versa

The International Economy (4 decks)

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