Macro 3 Flashcards
What are capital goods
goods used to make consumer goods
What are consumer goods
goods and services which satisfy the needs and wants of consumers
What is aggregate demand
The totals of all demands and expenditures in an economy at any given price in a given periods of time
What is national expenditure a measure of
national income
How is national expenditure measured
GDP
What are the four components national expenditure is made up of
Consumption
Government spending
Investment
Exports-Imports
What is on the y-axis on the AD curve
price level
What is price level
the average level of prices in an economy
How is price level measured
CPI - consumer price index
What is the x-axis on the AD curve
real gdp
What is the shape of the demand curve
Downward sloping
What does the shape of the AD curve show
As prices rise, the spending power of households fall
What is the equation for aggregate demand
C+I+G+(E-I)
What is the wealth effect
If the price level falls, the purchasing power of wealth increases, so consumers will demand more. Firms will invest more as investment products are cheaper
What is the interest rate effect
When price levels are low, interest rates tend to be low - this encourages investment and consumer spending