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Econ2 > Introduction To Macroeconomics > Flashcards

Introduction To Macroeconomics Flashcards

1
Q

Describe the circular flow of income

A

Money is earned via wages then spent on businesses, who then pay their workers

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2
Q

What are the 3 methods of measuring the size of the economy

A

Expenditure
Income
Output

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3
Q

Why are none of these methods better than others

A

National Income = National Output = National Expenditure

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4
Q

Describe the Expenditure method as measuring the size of the economy

A

Finds the sum of all the money spent on Capital or Consumer goods by economic agents over a given time

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5
Q

Describe the Income Method when measuring the size of the economy

A

Find the sum of the 4 different types of incomes earned through the production of goods and services

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6
Q

What is the Output Method also known as

A

The value-added method

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7
Q

Describe the Value-Added method for measuring the size of the economy

A

Finds the final output of an industry over a given time and subtracting money inputted into the industry

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8
Q

What is AD

A

Aggregate Demand is the total value of all the goods and services sold in an economy

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9
Q

Describe an AD diagram

A

A downward sloping line with axis labelled Y(Real GDP) and PL(Price Level)

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10
Q

What are the components of AD

A

C - Consumption
I - Investment
G - Government expenditure
E - Exports
I - Imports

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11
Q

In a developed economy, what is the largest component of AG

A

Consumption

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12
Q

What is the equation for AD

A

C + I + G + (X - M)

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13
Q

Apart from M what are the other 2 leakages

A

Savings and Taxation

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14
Q

What are the 3 types of injections

A

Investment
Exports
Government expenditure

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15
Q

What are injections

A

Things that add value to AD

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16
Q

What are leakages

A

Things that cause AD to decrease

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17
Q

If the economy is in equilibrium, what are injections equal to

A

Leakages

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18
Q

What effect would an increase in Government spending have on AD

A

It would cause the AD curve to move to the right

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19
Q

Why does consumer confidence have an impact on consumption

A

Is people believe that the economy is likely to grow they will spend more money

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20
Q

Why might high income households spend less money proportionate to income

A

They can afford to save money

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21
Q

What is consumer confidence

A

How people feel the economy will change in a period of time

22
Q

What is aggregate supply

A

The total value of goods and services produced in an economy

23
Q

Describe a short run AS curve under the ordinary interpretation

A

Sloping upwards

24
Q

Describe a long run AS curve under the ordinary interpretation

A

Perfectly inelastic. Labelled Yfe meaning Real GDP at full employment

25
Q

Why is the LRAS curve perfectly inelastic

A

Since the economy is at max output the total amount of goods and services produced will be unchanged by Price Level (and all other factors)

26
Q

What assuption is made when drawing an AD curve

A

the amount of money in the economy is constant

27
Q

What are the key macroeconomic indicators

A

Changes in price level, economic growth and changes in employment levels

28
Q

What could cause the SRAS curve to shift to the right

A

Decrease in costs for business

29
Q

What could cause the LRAS curve to shift to the right

A

increase in quality or quantity of factors of production

30
Q

Why is it not always good for the economy to be in equilibrium

A

It does not mean that all of the factors of production are being utilised

31
Q

When is short run economic growth possible

A

When the economy is below full employment

32
Q

What causes long run economic growth

A

An increase in the quality or quantity of a factor of production

33
Q

Why does economic growth benefit individuals

A

Better quality of living

34
Q

Define inflation

A

The rate of change of the average price level

35
Q

What is an index

A

A way of comparing the value of a variable with a base observation

36
Q

What is the consumer price index

A

A measure of the general level of prices in the UK

37
Q

What is the CPIH

A

A version of CPI that takes into account the housing costs of owners/occupiers and council tax

38
Q

What is RPI

A

The Retail Price index is a measure of the average level of prices in the UK

39
Q

What is deflation

A

Negative inflation

40
Q

What is disinflation

A

A fall in the rate of inflation

41
Q

What is hyperinflation

A

A situation where inflation reaches extreme rates

42
Q

What is cost push inflation

A

Inflation caused by an increase in the costs faced by firm

43
Q

What is demand-pull inflation

A

Inflation caused by an increase in aggregate demand

44
Q

What is money stock

A

The amount of money in the economy

45
Q

What is the multiplier effect

A

When an initial change in aggregate demand has a greater final impact on the equilibrium level of national income

46
Q

What is accelerator theory

A

The idea that an increase in GDP will often lead to a larger increase in private sector investment

47
Q

Define fiscal

A

Relating government spending and Taxation

48
Q

How do you calculate the size of a multiplier

A

1/(1 - MPC) or 1/MPW

49
Q

Prove that 1/(1 - MPC) = 1/MPW

A

MPC + MPW = 1

50
Q

What is marginal propensity

A

The % of income spent on a particular area

51
Q

How is the marginal propensity to consume calculated

A

ΔC / ΔY

Econ2 (5 decks)

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