Key Definitions Year 1 Flashcards
National Income
Current value of all goods and services produced by an economy in a given period of time
GDP
Measure of national income. Current value of total output of an economy over a period of time
Real GDP
Current value of total output of an economy with effects of inflation removed
Real GDP per capita
The average real GDP per person
PPP & Exchange rate
An exchange rate that reflects what two currencies are able to buy in their domestic economies
Injections (give examples as well)
Types of expenditure that add to or increase the circular flow of income in an economy
e.g. Investment
Government Spending
Exports
Withdrawals/leakages (give examples as well)
Part of household income not spent on goods and services. Not passed around circular flow of income
e.g. Withdrawals
Saving
Taxation
Imports
AD
Total planned spending on goods and services in the domestic economy
Components of AD
Consumption, Investment, Government Spending, Net Exports
Macroeconomic Equilibrium
The level of real GDP and price level when the planned level of AD = AS
Demand-side shock
An event that leads to a sudden/surprise change in AD
Supply-side shock
An event that leads to a sudden/surprise change in AS
Consumption
Spending by households on goods and services to satisfy wants
Investment
Spending that leads to an increase in capital stock. Injection into circular flow of income
Saving
Income not spent. Withdrawal from circular flow of income
Taxation
Money that individuals/firms must pay government
Helps finance government spending
Withdrawal from circular flow of income
Imports
Goods and services bought from other countries
Withdrawal from circular flow of income
Accelerator process
When an increase in economic growth leads to a proportionally larger increase in investment
Multiplier effect
Extent to which a change in injections affects national income
MPC
A measure of how a change in income affects consumption
AS
Total amount of goods and services firms are willing to produce ceteris paribus
Components of SRAS
Factors of production
Taxes
Subsidies
Components of LRAS
Quantity and quality of factors of production
Short-run economic growth
Rate at which total output of the economy is increasing. Annual percentage change in real GDP
