Intro to Macroeconomics Flashcards
Definitions
What is the definition of standard of living
It refers to the amount of goods and services available for a country’s residents for consumption
What do governments wish to achieve
1) Sustainable & Inclusive economic growth
2) Full Employment
3) Price Stability
4) Favorable balance of trade
What is sustainable economic growth?
It indicates a rate of positive and stable economic growth which can be maintained without creating other significant economic problems, particularly for the future generation.
What is Gross Domestic Product?
It is defined as the monetary value of all final goods and services produced by residents within the geographical boundaries of a country, in a given period of time, regardless of ownership of the factors of production.
What is full employment?
It refers to a case where all labour resources are utilised. It does not mean zero unemployment.
What is inflation and what is its indicator?
It refers to a sustained increase in general price level. Consumer Price Index (CPI)
What is favourable balance of trade?
Balance of trade is the revenue earned from the sales of a country’s exports of goods & services minus the expenditure spent on its total imports of goods & services, for a given period of time.
What will happen in a perfect 2-sector economy?
Assume all households spend all the income earned and firms use all the revenue earned to pay out the factor income, then the following will happen:
Total monetary value of output produced=Total income generated=Total expenditure spent
What are injections and list examples
Injections are known as expenditures that flow into the circular flow of income from the outside.
eg: Investment expenditure by the firms, Government expenditure, Exports revenue from the foreign sector
What are withdrawals and list examples
Withdrawls are known as income that flows out of the circular flow of income because the incomes of the households are not spent on purchasing domestically produced goods and services
eg: savings by households, taxes paid by firms and households, imports expenditure by the local country on foreign goods
What is the macroeconomic state of equilibrium
Total Withdrawals=Total injections
What happens if the country is in disequilibrium
1) If total withdrawals>total injections
-> net withdrawal from the circular flow-> national output/income decreases
2) If total withdrawals<total injetions
->net injection into the circular flow->national output/income increases
What is aggregate demand?
It shows the aggregate (total) demand on a country’s domestically produced final goods and services at each general price level in a given time period
What are the factors affecting consumption expenditure
1) Disposable income (income after tax deduction)
2) Demographics change (eg ageing population)
3) Interest Rate
4) Expectation of future
- Economic Outlook
- Prices
5) Government policies
