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Economics > Macro- Output + Aggregate Demand > Flashcards

Macro- Output + Aggregate Demand Flashcards

1
Q

Define Macroeconomics

A

Study of the Economy as a System.

Deals with Broad Aggregates

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2
Q

What are the 2 main Key issues in Macroeconomics?

A

Economic Growth

Macroeconomic Policy

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3
Q

What is Economic Growth

A

Increase in Real GNP + GNP/capita

It is an Indication of Expansion of the Economy’s Total Output

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4
Q

What is Macroeconomic Policy

A

Variety of Policy Measures used by the Gov. to affect Overall Performance of the Economy

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5
Q

Define Inflation

A

Rate of Change of the General Price Level

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6
Q

Define Unemployment

A

Measure of the Number of People looking for work but are without Jobs

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7
Q

Define Output

A

Real Gross National Product (GNP) measures Total Income of an Economy

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8
Q

What are the 5 main Measures of Output?

A 
GDP
GNP
Value Added
Final Goods
Intermediate Goods
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9
Q

Define GDP

A

Output made within the Borders of an Economy

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10
Q

Define GNP

A

Total Income an Economy

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11
Q

What is Value Added?

A

Increase in the Value of Goods as a result of the Production Process

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12
Q

Define Final Goods

A

Goods purchased by the ultimate user- households or firms

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13
Q

What are Intermediate goods?

A

Partly finished Goods that form Inputs to a subsequent Production Process that then uses them up

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14
Q

What are the 3 Measures of National Output?

A

Expenditure
Income
Output

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15
Q

What does the Expenditure Method calculate?

A

Y = C + I + G + X - Z

Total Expenditure in the Economy

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16
Q

What does the Income Method calculate?

A

Sum of all Incomes Paid for Factor Services

e.g. Wages, Profits etc.

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17
Q

What does the Output Method calculate?

A

Sum of Total Output (Value Added) produced in the Economy

18
Q

How do we distinguish between Real and Nominal GNP?

A

GNP Deflator

19
Q

What is the GNP Deflator?

A

Index showing what happens to the Price of all Goods

CPI is not good enough

20
Q

How do we account for Population Changes when measuring Output?

A

GDP/capita
GNP/capita
More Informative

21
Q

What is an Issue with the GNP measure?

A

It does NOT account for everything that makes up Economic Welfare

22
Q

Define Potential Output

A

Output the Economy would produce if all Factors of Production were fully employed

23
Q

Define Actual Output

A

What is actually produced within a given period.

This may diverge from Potential Output

24
Q

Define Output Gap

A

Difference between Potential and Actual Output

25
Q

What are the 3 Key Assumptions we make when analysing Keynesian Cross?

A
  • Prices + Wages are Fixed- all variables in Real terms
  • —The Actual quantity of Total-Output is Demand-determined
  • No Government
  • No Foreign Trade
26
Q

Define Consumption

A

Households Demand for G+S

27
Q

Define Investment

A

Firms desired/planned additions to physical Capital + Inventories

28
Q

What is AD under Keynesian Economics

A

AD = C + I

Due to No Government or Trade

29
Q

For simplification, where do we assume Households allocate their Income?

A

Consumption + Saving

30
Q

What is Personal Disposable Income of a Household made up of?

A
  • Income households have for Saving + Spending

- Income from Supply of Factor Services (Plus Transfer Payments - Direct Taxes)

31
Q

What is the relationship between Consumption + Income

A

Strong Positive Correlation
Even when Income approaches 0- people still Consume
-BUT- People often do NOT Consume all of their Income so Consumption is a fraction of Income

32
Q

What is the Consumption Function?

A 
C = A + cY
Consumption = Autonomous Consumption + MPC x Income
33
Q

If MPS = 1 - MPC = 1 - c, then what is the Saving Function?

A

S = -A + (1 - c)Y

34
Q

What does Investment Demand depend on?

A

Depends on what Firms think will happen to their Future Demand

35
Q

Define AD

A

Sum of Households planned Spending + Firms planned Investments

36
Q

What are the 2 ways to find Equilibrium Output?

A

Planned Demand = Actual Output/Income

Planned Investment = Planned Saving

37
Q

Find the Multiplier from the AD Equation, Y = C + I

A

Y = AD = C + I
=> Y = A + cY + I
=> Y = [A + I] +cY
Y* = [A + I] / (1 - c) == Multiplier

38
Q

Find the Savings Function if S = Y - C

A

S = Y - C
=> S = Y - (A + cY)
S = -A + (1 -c)Y

39
Q

What is the function for the Multiplier?

A

1 / (1 - c)

40
Q

What is the Paradox of Thrift?

A

As Households Increase Autonomous Consumption–> Saving should Decrease
However- If Output < Potential Output
– Equilibrium level of Planned Saving = Planned Investment
Decreases Desire to Save–> Increased Output w/ no change to Planned Savings

Economics (20 decks)

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