Lesson 2 Flashcards
what is the goods market in macroeconomics?
n macroeconomics, all these different markets for goods and services, which include both producers and consumers, are lumped together under the heading of the goods market. In economics, this “lumping together” is known as aggregation.
what is expenditure in GDP and what’s the formula?
Expenditure on the gross domestic product is spending on goods and services produced inside the borders of a country, including exports and excluding imports
[C + I + G + (X – IM)].
what’s Gross Domestic Expenditure ( GDE )?
This differs from gross domestic expenditure (GDE), which is the total value of spending within the borders of a country (C + I + G), including imports but excluding exports, since spending on exports takes place outside the borders of the country.
what are the four major spenders in the economy?
There are four major spenders in the economy, namely households (C), government
(G), private firms (I) and the foreign sector (X – IM)
describe Final consumption expenditure by households (C) as a spender of the economy
Final consumption expenditure by households (C) includes anything spending. In the national accounts
of South Africa, final consumption expenditure by households is classified in terms of durable goods, semi-durable goods, nondurable goods and services.
describe Final consumption expenditure by government (G) as a spender of the economy
Final consumption expenditure by government (G) consists of the expenditure of
the central government on final goods and services
describe Gross capital formation (I) as a spender of the economy
Gross capital formation (I) is the spending by households, private firms and government on residential and non-residential capital goods
what are imports and exports as part of the international sector?
Exports are goods that are produced within the country but sold to the rest of the world. South Africa’s exports consist mainly of gold and other minerals
Imports are goods that are produced in the rest of the world but purchased for
use in the domestic economy and they therefore do not form part of expenditure
on GDP. South Africa’s imports consist mainly of capital and intermediate goods,
which are used in the production process.
what is the formula for a closed economy?
Closed economy = C + I + G
what is the formula for an open economy?
Open economy =C + I + G + X – IM
who are responsible for consumer spending and what happens when their spending behaviour changes even a little bit?
Households are responsible for consumer spending in the economy and a change in
their spending behaviour, even a small one, will result in a change in the demand for
goods
consumption spending by households is determined by what?
Consumption spending by households is determined mainly by their current income
(Y).
what is consumption and what happens if there is a positive relationship between consumption and income?
In other words, consumption is a function of income (C = f(Y)) and a positive relationship exists between income and consumption since an increase in income leads to
an increase in consumption.
what happens to the consumer’s behavior if income increases?
An increase in income increases consumer spending, but the increase in consumer
spending is less than the increase in income
what is the value for marginal propensity?
The value for the marginal propensity to consume is usually between 0 and 1
