Macro Unit 1.1-1.5 Flashcards
What is the circular flow model?
A model that shows how money flows in an economy, the two main agents are households and firms
What are the leakages in the circular flow of income?
Savings, Taxation, and imports
What are the injections in the circular flow of income?
Government Expenditure, Investment, and Net Exports
What is meant by National Income?
The value of the output of all goods and services in an economy
Why & how do we measure national income? (GDP)
It gives information about the size of an economy and how well its doing.
GDP is the total value of all goods and services in an economy.
What is the difference between nominal and real GDP
Nominal GDP is the total value of the goods and services
Real GDP is adjusted for inflation
How do we define consumption and saving?
Consumption is the use of goods and services by households
Saving is the amount of money left after spending
Which factors determine consumption?
Income, savings, expectations, changes in fiscal policies, debt, and availability of goods and services
What is the marginal propensity to consume?
proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it
Which factors determine saving?
Interest Rates
Confidence
Economic Growth
Wealth
Consumer Preferences
Cultural Trends
Age
What is the marginal propensity to save?
the proportion of an increase in income that gets saved instead of spent on consumption
How is investment defined in economics?
purchasing assets or goods and services in order to produce other goods
Which factors affect the level of investment?
Confidence
Economic Growth
Aggregate Demand
State of Technology
What is the difference between the Keynesian and neoclassical approach to investment and therefore economic growth?
Neoclassical believes that the economy will always correct itself
