How the Macroeconomy Works, Circular Flow of Income, AD/AS Analysis and Related Concepts Flashcards
Accelerator
A change in the level of investment into capital goods, brought about by a growth of aggregate demand.
Actual output
Level of actual output produced in the economy in a year.
Aggregate demand
Total planned spending on real output produced by the economy.
Aggregate supply
Total real national output.
Autonomous consumption
The minimum level of consumption in society needed to sustain a basic standard of living.
Boom/Bust Policy
When the government enacts policies to stimulate then contract the economy.
Circular flow of income
The circulation of national income, output and expenditure between economic agents, such as firms and households.
Credit crunch
Low availability of credit; when borrowing becomes (significantly) more expensive.
Full employment income
Total output of an economy when output is minimised
Funding for Lending Scheme (FLS)
Scheme allowing banks to borrow cheaply from the Bank of England, on the condition that they lend the money out to promote economic growth.
Gross domestic product (GDP)
The sum of all goods and services produced in an economy over a period of time.
Injection
Spending power entering the circular flow of income resulting from investment, government spending and exports.
Keynesian economists
Followers of the economist John Maynard Keynes, who believe the government should generally manage the economy.
Long run aggregate supply (LRAS)
Aggregate supply when the economy produces its productive potential.
Monetarists
Economists who believe increases in the money supply is a significant factor of inflation.
Multiplier
The relationship between a change in aggregate demand and the resulting change in national income.
Multiplier ratio
Number of times a rise in national income is larger than the rise in the initial injection of AD, which led to the rise in national income.
National capital stock
Stock of capital in the economy.
National income
The flow of new output produced by the economy.
National output
The same as national income.
National product
The same as national income.
Nominal GDP
GDP measured at current market prices, without taking into account the effects of inflation.
Pro-free market economists
Opponents of Keynesian economists, who believe the government should generally leave the markets to operate freely.
Real GDP
GDP measured, taking into account the effects of inflation.
Real wage
The purchasing power of the nominal wage, after taking into account the effects of inflation.
Real wage unemployment
Unemployment caused by real wages being stuck above the equilibrium wage rate.
Red tape
Unnecessary business regulation
Saving
Unspent income
Short run aggregate supply (SRAS)
Aggregate supply when the level of capacity is fixed, though existing factors can be utilised more or less to impact real output.
Short run economic growth
An increase in the real output by taking up slack in the economy.
Sovereign wealth fund
Government or state run fund created by profits from natural resources.
Technological progress
When technological change results in more output for the same quantity of input.
Trend growth rate
The level of economic growth t
hat is sustainable, without putting upward
pressure on inflation.
Withdrawal
Spending power exiting the circular flow of income resulting from savings, taxation and imports.
