Macro- Economics year 1 Flashcards
Aggregate Demand
The value of total demand for final goods and services in an economy at a given time (C+I+G+(x-m))
Aggregate supply
The value of the total supply of final goods and services in an economy at a given time
Average propensity to consume
The percentage of total income that households spend on domestic goods and services
Average propensity to import
The percentage of total income that households spend on import
Average propensity to save (savings ratio)
The percentage of total income that households spend on saving
Average propensity to tax
The percentage of total income that households pay in tax
Black markets
Unofficial and unrecorded, often illegal, trading that is not counted when estimates of size of aggregate demand and aggregate supply are made
Capital accumulation
Investment that increases the total stock of capital in an economy
Capital consumption
A reduction in the total stock of capital in the economy
capital expenditure
Money spent by the government on adding to the capital stock
Capital stock
The total value of productive machinery and tools used in production in an economy
Capital output ratio
The relative size of the amount of capital stock that is needed in order to create the desired level of output
Circular flow of income
The total amount of money revolving around an economy in a period of time
Classical aggregate supply
In the short run the AS curve is upward sloping and in the long run its vertical
Consumption
The total amount of money spent by consumers on UK goods and services
Current government expenditure
Money spent by the government on the day to day running of the government. It includes things like welfare benefits and repairs to infrastructure
Depreciation (investment)
The reduction in value of an asset over a period of time
Discretionary expenditure
Money spent by the government over which it has a choice and it is easy to change how much it spends
Disposable income
Consumer income remains after deduction of taxes and social security charges, available to be spent or saved as the consumer chooses
Exchange rates
A price or rate at which one currency is changed for another. It tells you foreign money you can buy with £1.
Exports
UK Goods and services sold abroad
Financial transactions
spending by the government on buying shares in failed banks, lending money to businesses and lending money to other countries
Fixed capital formation
The process of a firm increasing its stock of assets used in the productive process. It means the same thing as capital accumulation but just for an individual firm
Full capacity
The maximum output possible in an economy with all available resources being used in their most efficient uses
Government spending
Goods and services bought by the government that are paid for through taxes and borrowing.
Keynesian aggregate supply
In the short run AS is horizontal and in the long run AS is vertical
Life cycle hypothesis of consumption
A theory developed by Franco Modigliani in 1957. It states that individuals seek to smooth consumption over the course of a lifetime. - borrowing in times of low income and saving during period of high income
LRAS
long run aggregate supply, this is the full capacity of the family
Macro economic equilibrium condition
where total injections into the circular flow of income are equal to the total withdrawals from it so that there is no incentive for GDP to change
Mandatory government expenditure
Money spent by the government by law e.g benefits
Injections
Money added to the circular flow of income, which increases AD
Marginal efficiency of capital
The expected rate of return on money spent on an investment
Marginal propensity to consume
The proportion of an extra amount of income that is spent on domestic consumption goods
Marginal propensity to tax
The proportion of an extra amount of income that is taxed and so is taken out of the circular flow of income.
Marginal propensity to withdraw
The proportion of an extra amount of income that is not spent and so s taken out of the circular flow of income
Money wages
The nominal value of wages paid to employees that form part of the costs of a business
Permanent income hypothesis of consumption
The idea that people spend money at a level consistent with their expected long term average income, so that even if this means that they have to borrow now they expect to be able to afford it later
Productivity
output per worker per period of time
Real wages
The nominal value wages paid to employees, that form pat of the costs of a business, reduced to take into account the effects of changes in prices
Real values
Items valued in money terms that have had their value reduced to reflect changes in pries over time
Saving
The act of putting money somewhere safe to keep for a future date
Savings
The stock of money that has been saved for a future date
SRAS
short run aggregate supply
The accelerator effect
where an increase in national income (GDP) results in a proportionally larger rise in the capital stock
Sticky wages
A situation where wages do not respond to changes in the supply and demand for labour. It is most often associated with wages not falling in a recession in order to clear unemployment.
The multiplier effect
where an increase in injection into there circular flow of income results in a proportionally larger rise in GDP
The wealth effect
where an increase in the value of an asset that you own makes you think you are richer so that you spend more money
Transfers/Transfer payments
A payment made or income received in which no goods or services are being paid for, such as welfare benefit payment or subsidy.
Withdrawals
Money taken out of the circular flow of income, which decreases aggregate demand
Economic activity
the amount of buying and selling that takes place in a period of time
Economic growth
The percentage change in the level of business activity ie the percentage change in GDP
Economic indicators
The measures that are used to judge the performance of an economy. These include inflation, unemployment, economic growth, balance of payments, the budget balance and the degree of equality
Economic performance
A judgement about how well the economy is doing referring to the economic indicators.
Employment
The number of people that are recorded as being working
GDP
Gross domestic product. This is the value of all good and service produced within an economy (for domestic consumption) excluding net investment income from abroad
GDP per capita
The per person value of all goods and services produced within the economy for domestic consumption excluding net investment from abroad.
General price level
A measure of the overall level of prices in an economy. It is calculated for a specific set of goods and services (the average consumer basket)
Government economic objectives
Economic targets set by the government for the main economic indicators.
Index numbers
A way of representing complex or large numbers so that they can be more easily read
Inflation
A persistent rise in the general level of prices. For example with an inflation rate of 10% something worth £100 would now cost £110 the next year and so on.
Nominal income
The value of a person’s or economy’s income before price changes are taken into acount
The balance of payments
The difference between all flows of money into a country (exports) and all flows of money out of a country (imports). It affects the aggregate demand and the size of the circular flow of income
Unemployment
The number of people who do not have a job but who want one.
