How the Macroeconomy works

Question 1

what is national income

Answer 1

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

Question 2

what is income

Answer 2

a flow in the economy eg wages

Question 3

what is wealth

Answer 3

stock of assets

Question 4

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

Answer 4

real income rising = improvement of economic performance

real income falling - standard of living is falling

Question 5

the circular flow of income

Answer 5

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

Question 6

what are injections

Answer 6

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

Question 7

what are withdrawals

Answer 7

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

Question 8

what are the determinants of savings

Answer 8

factors that influence an individual decision to save than consume immediately

Question 9

what are savings

Answer 9

portion of income that is not spent

Question 10

what are investments

Answer 10

expenditure by firms on capital goods

Question 11

what is the equilibrium national income level

Answer 11

where withdrawals are equal to injections
or when AD=AS

Question 12

What is full employment

Answer 12

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

Question 13

what is aggregate demand

Answer 13

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

Question 14

formula forAD

Answer 14

C+I+G+(X-M)

Question 15

factors that shift the AD curve

Answer 15

Consumption
Gov spending
Net exports
Invest,ent

Question 16

factors that affect consumption

Answer 16

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

Question 17

factors that affectexports

Answer 17

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

Question 18

factors that affect imports

Answer 18

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

Question 19

factors that affect investment

Answer 19

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

Question 20

factors that affect gov spending

Answer 20

capital
trade cycle
political decisions

Question 21

what is aggregate supply

Answer 21

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

Question 22

factors that affect the SRAS

Answer 22

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

Question 23

what is long run aggregate supply

Answer 23

LRAS represents the potential capacity of an economic factor of production

can show economic growth when a rightward shift occurs

Question 24

factors that affect the LRAS

Answer 24

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

Question 25

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

Answer 25

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.

Question 26

what is an economic shock

Answer 26

an unpredictable event that has macroeconomic consequences has negative or positive impacts n economic growth, inflation rate, unemployement lvls

Question 27

what is a demand side shock

Answer 27

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

Question 28

what is a supply side shock

Answer 28

production becomes more difficult

Question 29

examples of macroeconmic shock

Answer 29

The financial crisis- banking instability, reduced borrowing, fall in AD increased unemployment pandemic- reduced consumer spending, price fluctuations,

Question 30

what is the multiplier

Answer 30

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

Question 31

what can influence the size of the multiplier

Answer 31

Size of withdrawals eg higher the withdrawalW the smaller the MPC

Question 32

What is the MPC

Answer 32

proportion of additional income that is spent on consumption

Question 33

how to calculate MPC

Answer 33

Consumption/Income

Question 34

formula for the multiplier

Answer 34

1/1-MPC

Question 35

Factors that can impact income and in turn the multiplier

Answer 35

interest rates consumer confidence exchange rates tax rates

Question 36

what is the accelerator process

Answer 36

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

Question 37

what are commodity prices

Answer 37

market prices of raw materials or primary agricultural products, such as oil, gold, or wheat. Factors like supply and demand, geopolitical events, and market speculation influence these prices.