INTRO TO MACRO Flashcards
What does macroeconomics study?
The economy as a whole.
What is the role of households in the circular flow model?
Owners of resources and buyers of final goods/services.
What does the circular flow of income model describe?
Flows of resources, goods, services, income, and expenditure between sectors of the economy.
What are the key sectors in the circular flow model?
Households, firms, financial sector, government, and overseas sector.
What is the role of firms in the circular flow model?
Employers of resources and producers of goods/services.
Define the financial sector’s role.
Facilitates saving and borrowing for consumers and producers.
. What does the government sector contribute to the economy?
Provides collective goods, manages taxation, and spends on infrastructure
What is a “transfer payment”?
Payment by government without exchange of goods/services, like welfare.
What are leakages and injections in the economy?
Leakages reduce money flow; injections increase it.
Give examples of leakages.
Tax, savings, imports.
Give examples of injections.
Government spending, exports, investment.
What is macroeconomic equilibrium?
Total output = total income = total spending.
What does GDP measure?
Total value of production or income in the economy.
Why is only the final value of goods counted in GDP?
To avoid double counting.
What is inflation?
A sustained increase in the general price level over time.
What are the four main sectors of aggregate expenditure?
Personal consumption, private investment, government spending, and net exports.
What is the expenditure method for GDP calculation?
Sum of consumption, investment, government spending, and net exports (C + I + G + (X - M)).
Flashcard Set: Co
What factors influence consumption spending?
Disposable income, household wealth, consumer expectations, government policies.
What indicators measure economic performance?
GDP, unemployment rate, and inflation rate.
Define demand-pull inflation.
Increase in prices due to high demand.
Define cost-push inflation.
Price increase due to higher production costs.
What are the four phases of the business cycle?
Peak (boom), recession, trough, expansion.
What characterizes a peak/boom phase?
High consumption, low unemployment, high tax revenue, potential high inflation.
When is an economy considered in a recession?
After two consecutive quarters of falling GDP.
What happens during a trough?
Low consumption, high unemployment, low tax revenue, increased government spending.
Describe the expansion phase.
Rising consumption, falling unemployment, higher tax revenue, slower government spending.
