Macro- Aggregate Demand and Aggregate Supply Flashcards

1
Q

Circular Flow of Income

A

Model of the economy that shows the flow of goods and services, the factors of production and money around the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Injections

A

Spending Power entering the circular flow of income resulting from:
-Investment
-Export Revenue
-Government Spending

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Leakages

A

Spending power leaving the circular flow of income resulting from:
-Savings
-Imports
-Taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Macroeconomic Equilibrium

A

AD=AS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Aggregate Demand (AD)

A

Is the total demand, or the total spending in an economy over a given period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

AD Components

A

AD= C+I+G+(X-M)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Consumption

A

Consumer Spending on goods and services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Investment

A

Spending by business on capital goods which leads to creation of real goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Government Spending

A

Spending by the government for the provision of goods and services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Exports

A

Goods and services sold to foreign countries that provide an inflow of money.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Imports

A

Goods and services bought from foreign countries that lead to an outflow of money.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Net Exports

A

Exports-Imports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Exchange Rates

A

Is the price of a currency in terms of another currency.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Appreciation

A

If the value of the currency rises against that of another currency.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Depreciation

A

If the value of a currency falls on relation to the value of another currency.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Aggregate Supply (AS)

A

Total supply of all goods and services produced within an economy at a given overall price at a given time.

17
Q

Short Run Aggregate Supply (SRAS)

A

Aggregate Supply when at least one factor of production is fixed. Affected by cost of production raw materials, wage costs and oil prices.

18
Q

Short Run

A

When at least one factor of production is fixed.

19
Q

Long Run aggregate supply (LRAS)

A

Is determined by all factors of production- size of the work force, size of capital, levels of education, labour productivity and economic growth.

20
Q

Long Run

A

When all factors of production are variable.

21
Q

Multiplier

A

An increase in AD (initial injection) leads to an even bigger increase in national income.

22
Q

Positive Multiplier

A

Increase AD
Injections>Leakages

23
Q

Negative Multiplier

A

Reduce in AD
Injections<Leakages

24
Q

Accelerator Theory

A

The Level of Investment depends on the rate of change of GDP. So an increase in the rate of economic growth will cause a larger change in I.

During Economic Boom (rise in Real GDP) - Investment will increase dramatically with many more capital goods being purchased to expand capacity.

If Real GDP is constant- only investment that may take place for firms is replacement investment (replace worn out capital goods).

During Recession- Net investment may be negative with some capital goods not being replaced due to lack of funds/ or firms need to reduce capacity.

25
Output Gap
The difference between the actual and potential output of the economy
26
Negative Output Gap
When GDP is lower than predicted: the economy is producing below full output.
27
Positive Output Gap
When GDP is higher than predicted; the economy is producing above full output.
28
Marginal Propensity To Consume (MPC)
Proportion of each additional pound of household income that is used to consume.
29
Marginal Propensity to Save (MPS)
Proportion of each additional pound of household income that is used for saving. A consumers marginal propensity to save plus marginal propensity to consume MPC+MPS= 1
30
Marginal Propensity to Withdraw (MPW)
The proportion of an increase in income that is withdrawn from the circular flow of income. Taxes+Savings+Imports MPT+ MPS + MTM
31
Calculating Size of Multiplier
1/1-MPC OR (depends on the question) 1/MPS+MPT+MPM
32
Average propensity to consume (APC)
The percentage of income spent on goods and services rather than saved.
33
Average Propensity to Save (APS)
The percentage of income that is saved.